10-Q 1 mjpharma10q063016.htm 10-Q
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 Form 10-Q 
 
 
(Mark One)
 
☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
☐   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to ______________
 
MJ PHARMACEUTICALS, INC.
 (Exact name of registrant as specified in its charter)
 
Delaware
 
46-4288088
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
8992 Preston Rd., Suite 110-3
Frisco, Texas 75034
(Address of principal executive offices)
 
(214) 505-3839
(Registrant’s telephone number, including area code)
 
Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
 
Check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large Accelerated Filer
☐
Accelerated Filer
☐
 
 
 
 
 
 
Non-accelerated Filer
☐
Smaller Reporting Company
☒
 
Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
 Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at August 26, 2016
 
 
 
Common stock, $0.0001 par value per share
 
190,064,778


 

TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
Part I
 
 
 
 
 
 
 
Item 1.
 
1
 
 
1
 
 
2
 
 
3
 
 
4
 
 
5
Item 2.
 
12
Item 3.
 
17
Item 4.
 
17
 
 
 
 
Part II
Other Information
 
 
Item 1.
 
18
Item 2.
 
18
Item 3.
 
19
Item 4.
 
19
Item 5.
 
19
Item 6.
 
20
 
21
 
In this Quarterly Report on Form 10-Q, “we”, “our”, “us” and the “Company” refers to MJ Pharmaceuticals, Inc.
 
 


PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements.
MJ PHARMACEUTICALS, INC.
BALANCE SHEETS
 
   
June 30,
2016
    
December 31,
2015
  
 
(Unaudited)
        
ASSETS
            
             
Current Assets:
            
Cash and cash equivalents (Note 2)
  
$
18,830
    
$
3,971
  
Inventory (Note 2)
    
45,630
      
-
  
Prepaid Rent (Note 4)
    
3,250
      
-
  
Total Current Assets
    
67,710
      
3,971
  
                 
Property, plant and equipment, net (Notes 2 and 5)
    
42,135
      
–
  
                 
TOTAL ASSETS
  
$
109,845
    
$
3,971
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                
                 
Current Liabilities:
                
Accrued Expenses
  
$
3,500
    
$
9,309
  
Related party loan
–
      
449
  
Total Current Liabilities
    
3,500
      
9,758
  
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
                
                 
Preferred stock par value $0.0001 per share; 20,000,000 shares authorized; none issued at
June 30, 2016 and December 31, 2015.
    
–
      
–
  
                 
Common stock, par value $0.0001 per share; 500,000,000 shares authorized;190,104,000
and 185,740,000 shares issued and outstanding, at June 30, 2016 and December 31, 2015, respectively.
    
19,010
      
18,574
  
                 
Additional Paid In Capital
    
186,564
      
–
  
                 
Accumulated Deficit
    
(99,229
)
    
(24,361
)
Total Stockholders’ Equity (Deficit)
    
106,345
      
(5,787
)
                 
Total Liabilities and Stockholders’ Equity (Deficit)
  
$
109,845
    
$
3,971
  
 
The accompanying notes are an integral part of these financial statements.
 

MJ PHARMACEUTICALS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
  
2016
    
2015
    
2016
    
2015
  
Revenues (Note 2):
                        
   Revenues
  
$
10,000
    
$
-
    
$
18,000
    
$
-
  
   Less: cost of goods sold
    
(5,750
)
    
-
      
(10,750
)
    
-
  
                                 
Gross Profit
    
4,250
      
-
      
7,250
      
-
  
                                 
Expenses
                                
   General and administrative
    
19,029
      
(521
)
    
26,627
      
11
  
   Taxes-property
    
16,856
      
-
      
23,856
      
-
  
   Legal, organization and related expenses
    
-
      
1,566
      
-
      
1,566
  
   Professional fees
    
9,500
      
-
      
31,635
      
-
  
 
                                
Total Expenses
    
45,385
      
1,045
      
82,118
      
1,577
  
 
                                
Net (loss)
  
$
(41,135
)
  
$
(1,045
)
  
$
(74,868
)
  
$
(1,577
)
                                 
(Loss) per common share, basic and diluted (Note 2)
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.00
)
                                 
Weighted average shares outstanding, basic and diluted
    
190,064,778
      
185,740,000
      
189,156,911
      
185,740,000
  

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

MJ PHARMACEUTICALS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
FOR SIX MONTHS ENDED JUNE 30, 2016

 
  
Common
Stock
Shares
    
Common
Stock
Amount
    
Additional
Paid-in
Capital
    
Accumulated
Deficit
    
Total
  
 
                              
 
                              
Balance December 31, 2015
  
 
185,740,000
    
$
18,574
    
$
–
    
$
(24,361
)
  
$
(5,787
)
Shares issued for cash
    
4,364,000
      
436
      
186,564
      
–
      
187,000
  
Net (loss)
                            
(74,868
)
    
(74,868
)
 
                                        
Balance June 30, 2016 (unaudited)
    
190,104,000
    
$
19,010
    
$
186,564
    
$
(99,229
)
  
$
106,345
  
 
The accompanying notes are an integral part of the financial statements.
 

 MJ PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
 
 
  
Six Months Ended
 
 
  
June 30,
 
 
  
2016
    
2015
  
Cash flows from operating activities:
            
Net (loss)
  
$
(74,868
)
  
$
(1,577
)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
                
Depreciation
    
543
      
–
  
Changes in operating assets and liabilities:
                
 
                
(Increase) in inventory
    
(45,630
)
        
(Increase) in prepaid rent
    
(3,250
)
        
(Decrease) in accrued expenses
    
(5,809
)
        
 
                
Net cash (used in) operating activities
    
(129,014
)
    
(1,577
)
 
                
Cash flows from investing activities:
                
Purchase of building
    
(42,678
)
    
–
  
 
                
Net cash (used in) investing activities
    
(42,678
)
    
–
  
 
                
Cash flows from Financing activities:
                
Proceeds from issuance of common stock
    
187,000
      
–
  
(Repayment of) proceeds from related party loan
    
(449
)
    
50
  
 
                
Net cash provided by financing activities
    
186,551
      
50
  
 
                
Net change in cash and cash equivalents
    
14,859
      
(1,527
)
                 
Cash and cash equivalents, beginning of period
    
3,971
      
7,358
  
 
                
Cash and cash equivalents, end of period
  
$
18,830
    
$
5,831
  
 
                
Supplemental disclosures of cash flow information:
                
 
                
Cash paid during the period for interest
  
$
–
    
$
–
  
 
                
Cash paid during the period for taxes
  
$
–
    
$
–
  
 
The accompanying notes are an integral part of the financial statements.




MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

1.     GENERAL

Organization and Business Nature

MJ Pharmaceuticals, Inc. (the "Company") was incorporated under the laws of the State of Delaware on February 21, 2012 as Melanthios Acquisition, Inc.  The Company initially intended to serve as a vehicle to effect an asset acquisition, merger, and exchange of capital stock or other business combination with a domestic or foreign business.

On October 31, 2013, the original owner of the Company transferred 100% of his shares to Uren Enterprises, LLC which is solely owned by Mr. Mark Uren.  The Company under the new ownership intended to serve as an investor in and provider of e-commerce operations to the property management and property rental industries, as well as investor in and provider of e-commerce operations and other services to the marijuana pharmaceutical industry.

On April 11, 2014, Melanthios Acquisition, Inc. amended its certificate of incorporation changing the name of the Company to Price My Rent Group, Inc.  On December 17, 2014, Price My Rent Group, Inc. amended its certificate of incorporation changing the name of the Company to MJ Pharmaceuticals, Inc.

The Company commenced limited initial e-commerce operations on September 1, 2014.  In November 2014, the Company suspended these operations, subject to further development of the e-commerce portal.

2.     ACCOUNTING POLICIES

Basis of Accounting and Presentation

The unaudited interim financial statements of the Company as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) which apply to interim financial statements.  Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements.  In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.  The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2016.
 
 


MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

2.     ACCOUNTING POLICIES (continued)
 
Use of Estimates

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

Cash and Cash Equivalents

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

Inventory

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

Property, plant and equipment are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditures that substantially increase an asset’s value or extends the useful life of an existing asset.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited.  Maintenance and repairs are generally expensed as incurred.  The estimated useful lives for property, plant and equipment categories are as follows:

Building
40 years
Furniture
  7 years

Revenue Recognition

Revenue is recorded pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when persuasive evidence of an arrangement exists, delivery of the product or services has occurred, the fee is fixed and determinable and collectability is reasonably assured.  Beginning in 2016 the Company generated revenue from the sale of packaged products and marijuana oil cartridges.

 
 


MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

2.     ACCOUNTING POLICIES (continued)
 
Income Taxes

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

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

Earnings (Loss) Per Share

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

NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

2.     ACCOUNTING POLICIES (continued)
 
Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurement, specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  In accordance with ASC 820, the following summarizes the fair value hierarchy:

Level 1 Inputs – Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 Inputs – Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3 Inputs – Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.

FASB ASC 820 requires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurements.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis.  Non-derivative financial instruments include cash and cash equivalents, accrued expenses and the related party loan.  As of June 30, 2016 and December 31, 2015, the carrying values of these financial instruments approximated their fair values due to their short term nature.

3.     RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, Leases.  The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  We are currently evaluating the impact of our pending adoption of the new standard on our financial statements.
 
 
 
MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

3.     RECENTLY ISSUED ACCOUNTING STANDARDS (continued)

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures.  The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  This accounting standard update is not expected to have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition.  The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance, as amended, is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Companies are permitted to adopt this new rule following either a full or modified retrospective approach.  Early adoption is permitted for annual periods beginning after December 15, 2016.  This accounting standard update is not expected to have a material impact on the Company’s financial statements.
 
4.     LEASES

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



MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
 
5.     PROPERTY, PLANT AND EQUIPMENT

During the six months ended June 30, 2016, the Company purchased a 150,000 sq. ft. facility in Detroit Michigan for $40,399 for a future manufacturing/distribution center.

Property, plant and equipment as of June 30, 2016 and December 31, 2015 are summarized as follows:

   
2016
    
2015
  
   
(Unaudited)
        
Building
  
$
40,399
    
$
-
  
Furniture and fixtures
    
2,279
      
-
  
     
42,678
      
-
  
Less: accumulated depreciation
    
(543
)
    
-
  
                 
Property, plant and equipment, net
  
$
42,135
    
$
-
  

For the three and six months ended June 30, 2016 and 2015, depreciation expense was $359, $543, $0 and $0, respectively.
 
6.     ISSUANCE OF COMMON STOCK

During the six months ended June 30, 2016, the Company issued an aggregate of 4,364,000 shares of common stock at various prices with a total proceeds of $187,000.
 
7.     GOING CONCERN

The Company’s financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company is a start-up entity subject to the substantial business risks and uncertainties inherent to such an entity, including the potential risk of business failure.  The Company has generated operating losses since its inception.  While the Company is attempting to commence operations and generate revenues, it continues to be reliant upon its stockholders to support its daily operations.  This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern and its ability to commence its planned principal business activities is dependent upon the continued financial support from its stockholders and its ability to obtain the necessary equity or debt financing and eventually attain profitable operations.





MJ PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
 
7.     GOING CONCERN (continued)
 
The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
 
8.     SUBSEQUENT EVENTS
 
The Company's management has performed subsequent events procedures through August 26, 2016, which is the date the financial statements were available to be issued.  Except for the issue discussed below, there were no subsequent events requiring adjustment to the financial statements or disclosure as stated herein.

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

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

 



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
 
This Quarterly Report contains “forward-looking statements”.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
 
Forward-looking statements may include the words “may”, “could”, “estimate”, “intend”, “continue”, “believe”, “expect” or “anticipate” or other similar words.  These forward-looking statements present our estimates and assumptions only as of the date of this report.  Accordingly, readers are cautioned not to place undue reliance upon forward-looking statements, which speak only as of the dates upon which they are made.  Except for our filings, we do not intend, and undertake no obligation, to update any forward-looking statement.  You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
 
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:
 
Ÿ our limited working capital;
Ÿ our ability to raise additional financing;
Ÿ the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
Ÿ deterioration in general or regional economic conditions;
Ÿ adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
Ÿ inability to efficiently manage our operations;
Ÿ inability to achieve future sales levels or other operating results; and
Ÿ the unavailability of funds for capital expenditures.
 
Throughout this Report references to “we”, “our”, “us”, “MJ Pharmaceuticals”, “the Company”, and similar terms refer to MJ Pharmaceuticals, Inc.
 
Overview and Outlook
 
We are an “emerging growth company” (“EGC”) that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act (“the JOBS Act”), that eases restrictions on the sale of securities; and increases the number of shareholders a company must have before becoming subject to the U.S.  Securities and Exchange Commission’s (SEC’s) reporting and disclosure rules (See “Emerging Growth Companies” section above).
 
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
 
We currently engage in business activities that provide limited cash flow.


Key Components of our Results of Operations
 
Revenue
 
We anticipate we will derive our revenue from two primary sources: the licensing or sale of Medicinal Cannabis Patented Products and Cannabis Laboratory Testing.
 
The Company commenced limited initial operations in E-commerce Software Solutions on September 1, 2014. In November 2014, the Company suspended these operations. It subsequently determined to serve as investor in and provide of e-commerce operations and other services to the marijuana pharmaceutical industry.

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

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

Cost of revenue consists primarily of product costs, personnel costs related to our operations, support services and training and implementation services. Personnel costs will include salaries, bonuses, stock-based compensation and employee benefits. Cost of revenue will also include an allocation of facilities costs, overhead costs and depreciation, and amortization of capitalized development costs. We will primarily allocate facilities costs, overhead costs and depreciation based upon head count.
 
Operating Expenses
 
We classify our operating expenses into three categories: product distribution, sales and marketing, and general and administrative. Our operating expenses will primarily consist of personnel costs, which will include compensation, employee benefits and payroll taxes, costs for third-party contracted development, marketing, legal, accounting and consulting services and other professional service fees. Personnel costs for each category of operating expenses will include salaries, bonuses, stock-based compensation and employee benefits for employees in that category. In addition, our operating expenses will include an allocation of our facilities costs, overhead costs and depreciation based on head count for that category, as well as amortization of purchased intangible assets resulting from any acquisitions.
 
Product distribution  - Product distribution expense will consist primarily of personnel costs for product distribution employees and executives, fees to contract producers and distribution vendors and facility cost for maintaining an inventory of products. Our product distribution efforts are focused primarily on making the product available for consumption to the end-user.
 
Sales and marketing  - Sales and marketing expense will consist primarily of personnel costs for our sales, marketing and business development employees and executives, travel and entertainment and marketing programs. Marketing programs may consist of advertising, tradeshows, user conferences, public relations, industry sponsorships and affiliations and product marketing. In addition, sales and marketing expense may include amortization of certain purchased intangible assets, including customer relationships and key vendor and supplier relationship. We expect our sales and marketing expense to increase in absolute dollars.
 
General and administrative  - General and administrative expense will consist of personnel costs for our executives, finance and accounting, human resources, management information systems and legal personnel, as well as legal, accounting and other professional service fees and other corporate expenses. We expect our general and administrative expense to increase in absolute dollars.



We had operating expenses of $45,385 and $1,045 the three months ended June 30, 2016 and 2015, respectively, and $82,118 and $1,577 the six months ended June 30, 2016 and 2015, respectively. Our operating expenses are for product distribution and all general and administrative expenses such as travel, legal and professional fees and filing fees.
 
Income Taxes
 
Historically, we have incurred annual operating losses and have not benefited from these losses.  As of June 30, 2016, we had net operating loss carry forwards for federal and state income tax purposes of $(74,868).  Based on current period income and projected future year income, we believe that it is more likely than not that the net deferred tax assets recorded will be realized.  If not utilized, our federal net operating loss and tax credit carry forwards will begin to expire in 2033.  While not currently subject to an annual limitation, the utilization of these carry forwards may become subject to an annual limitation because of provisions in the Internal Revenue Code that are applicable if we experience an “ownership change,” which may occur, for example, as a result of an offering or other issuances of stock.
 
Critical Accounting Policies
 
Our financial statements are prepared in accordance with GAAP.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions.  The preparation of our financial statements and related disclosures may require us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures.  We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances.  In some instances, we could reasonably use different accounting estimates, and in some instances results could differ significantly from our estimates.  We will evaluate our estimates and assumptions on an ongoing basis.  To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition and accounts receivable have the greatest potential impact on our financial statements.  Therefore, we believe the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our management’s judgments, assumptions and estimates.
 
Revenue Recognition
 
We currently derive our revenue from the sale and distribution of “pen cartridges” to the medicinal industry.  We will focus our efforts on the direct channel distribution of our “pen cartridges” directly to the manufacturers of the medicinal pens.
 
Revenue is recorded pursuant to FASB ASC 605, Revenue Recognition, when persuasive evidence of an arrangement exists, delivery of the product or services has occurred, the fee is fixed or determinable and collectability is reasonably assured.
 
 

Accounts Receivable
 
For several of our solutions, we may invoice our customers prior to the period in which our product is provided.  Accounts receivable will represent trade receivables from customers whom we have invoiced for products where we have not yet received payment.  We will present accounts receivable net of an allowance for doubtful accounts.  We will maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments, or the customer cancelling prior to the service being rendered.  In doing so, we will consider the current financial condition of the customer, the specific details of the customer account, the age of the outstanding balance, the current economic environment and historical credit trends.  As a result of a portion of our allowance being for services not yet rendered, a portion of our allowance may be charged as an offset to deferred revenue, which does not have an effect on the statement of operations.  Any change in the assumptions used in analyzing a specific account receivable might result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs.

Liquidity and Capital Resources
 
As of June 30, 2016, the Company had $18,830 in cash and cash equivalents, $45,630 in inventory and $3,250 in prepaid rent. The Company has used these funds to purchase additional packaged products and operational expenses to market in the Detroit area. To date, we have financed our operations through the issuance of stock and limited revenues from the sale of products.
 
Liquidity is a measure of a company’s ability to meet potential cash requirements.  We have historically met our capital requirements through the issuance of stock, which has been invested in us by Uren Enterprises, LLC, our controlling shareholder, or Mark Uren, our sole officer, director, or other investors.  In the future, we anticipate we will be able to provide the necessary liquidity needed from the revenues generated from operations but there is no assurance that this will happen.
 
As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations.  Additionally we anticipate obtaining additional financing to fund operations through additional common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.

 

We anticipate that we will incur operating losses in the next twelve months.  Our minimal operating history makes predictions of future operating results difficult to ascertain.  Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets.  Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth.  To address these risks, we must, among other things, increase our customer base, further and improve our marketing strategy, continually develop and upgrade our website, provide national and regional businesses with an effective, efficient and accessible website on which we are able to promote ours and their services through the Internet, respond to competitive developments, and attract, retain and motivate qualified personnel.  There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations. 
 
Operating activities
 
Net cash used in operating activities was $(129,014) for the six months ended June 30, 2016, as compared to $(1,577) for the six months ended June 30, 2015.  The increase in net cash used in operating activities was primarily due to increased operating expenses related to product distribution, organizational costs and general and administrative expenses.
 
Financing and Investing activities
 
Net cash provided by financing activities for the six months ended June 30, 2016, was $186,551, as compared to $50 for the six months ended June 30, 2015.  The increase of net cash provided by financing activities was mainly attributable to an increase in capital provided through the issuance of common stock.
 
We hope that cash flow from operations will meet our present and near-term cash needs; however, we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months.  We will require additional cash resources due to changed business conditions, maintenance of our website, implementation of our strategy to expand our sales and marketing initiatives, increase brand and services awareness.  If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities.  The sale of additional equity securities will result in dilution to our stockholders.  Incurring indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business.  Financing may not be available in amounts or on terms acceptable to us, if at all.  Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Significant Accounting Policies
 
The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
 
Off-Balance Sheet Arrangements
 
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
Contractual Obligations
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
 
Item 4. Controls and Procedures.
 
The Company’s management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of the Company’s management.  Mark Uren, the Company’s then President, Principal Financial Officer and Secretary, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based on that evaluation, the Company’s sole officer concluded that the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms.

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


 
PART II – OTHER INFORMATION

Item 1.  Legal Proceedings.
 
There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.
 
Item 1A.  Risk Factors.
 
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
On October 31, 2013, the initial owner of the Company transferred his 31,390,000 shares, which constituted 100% of the issued and outstanding shares of common stock of the Company to a new owner, Uren Enterprises, LLC, which is solely owned by Mr. Mark Uren.

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

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

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

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

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

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

The Company’s Board of Directors has the power to issue any or all of the authorized but unissued Common Stock without stockholder approval. The Company currently has no commitments to issue any shares of its common stock. Existing stockholders of the Company may experience substantial dilution in their shares in the event of a business combination.

The Company has disbursed the proceeds, which were raised from the issuance of stock during the period of the six months ended June 30, 2016, as set forth below:

Expenditures
      
Purchase of facility/warehouse
  
$
40,399
  
Professional Fees
    
31,635
  
Property taxes
    
23,856
  
Inventory
    
51,380
  
Furniture and fixtures
    
2,279
  

The balance of the proceeds were used for travel expenses for the promotion and sale of the Company’s “pen cartridges” and future products.
 
Item 3.  Defaults Upon Senior Securities.
 
The Company currently does not have senior securities
 
Item 4.  Mine Safety Disclosures.
 
Not applicable.
 
Item 5.  Other Information.
 
Mark Uren tendered his resignation letter dated August 15, 2016, to resign from the Company by reason of other than for Cause, as the Chief Executive Officer, Principal Financial Officer, Secretary, the sole Director and the Chairman of the Board of Directors and from any office he held with the Company. Mr. Uren shall pursue new opportunities outside of MJ Pharmaceuticals, Inc. but shall remain as the largest stockholder of the Company.

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

Item 6. Exhibits.

 
 
 
Incorporated by reference
Exhibit
Exhibit Description
Filed herewith
Form
Period ending
Exhibit
Filing date
3.1
Certificate of Incorporation
 
10-12G
 
3.1
9/25/2012
3.2
By-Laws
 
10-12G
 
3.2
9/25/2012
31
X
 
 
 
 
32
X
 
 
 
 
 
The following documents are filed as part of the report:
 
1. Financial Statements: Balance Sheet, Statement of Operations, Statement of Stockholder’s Equity, Statement of Cash Flows, and Notes to Financial Statements.
 
 

 

 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
MJ PHARMACEUTICALS, INC.
 
 
 
 
 
Dated: August 29, 2016
By:
/s/ James Liebo
 
 
 
James Liebo, Chief Executive Officer,
 
 
 
President and Secretary
 
 
 
 
 
 
 By:
/s/ Steven Lebo
 
 
 
Steven Lebo, Chief Financial Officer
 
 
 
 
 


 

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