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MJ Holdings, Inc. - Quarter Report: 2017 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)


R

 

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

For the quarterly period ended June 30, 2017

 

 or

 

 £

 

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

For the transition period from                      to                     

 

Commission file number: 333-167824

 

MJ HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA

(State or other jurisdiction of 

incorporation or organization)

 

20-8235905

(I.R.S. Employer

Identification No.)

 

4141 NE 2nd Avenue, Suite 204-A, Miami, Florida 33137

(Address of principal executive offices) (Zip Code)

 

(305) 455-1881

(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 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 þ   No ¨

 

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

 

Large accelerated filer ¨

 

Accelerated filer ¨ 

 

Non-accelerated filer ¨ 

 

Smaller reporting company þ

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

 

 

 

 

 

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 a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨   No þ

 



1



APPLICABLE TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of August 7, 2017

Common Stock, $0.001

 

12,227,939




2



MJ HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations  

11

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

 

 

 

Item 4.

Controls and Procedures

15

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

15

 

 

 

Item 1A.

Risk Factors

15

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

 

 

 

Item 3.

Defaults Upon Senior Securities

15

 

 

 

Item 4.

Mine Safety Disclosures

5

 

 

 

Item 5.

Other Information

15

 

 

 

Item 6.

Exhibits

16

 

 

 

SIGNATURES

17

 



3




PART I  FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

MJ HOLDINGS, INC.

Condensed Consolidated Balance Sheets

As of June 30, 2017 and December 31, 2016

(Unaudited)

 

 

 

June 30,

2017

 

December 31,

2016

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$

58,074

 

 

$

463,773

 

Accounts receivable

 

 

25,155

 

 

 

30,187

 

Prepaid assets

 

 

 

 

 

6,862

 

Current assets held for disposition

 

 

 

 

 

54,419

 

Total current assets

 

 

83,229

 

 

 

555,241

 

Property and equipment, net of accumulated depreciation of $1,111 and $778

 

 

889

 

 

 

1,222

 

Noncurrent assets held for disposition

 

 

 

 

 

3,807,782

 

Total Assets

 

$

84,118

 

 

$

4,364,245

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

30,268

 

 

$

130,889

 

Accrued liabilities due to related party

 

 

 

 

 

2,132

 

Current liabilities held for disposition

 

 

 

 

 

2,722,865

 

Total current liabilities

 

 

30,268

 

 

 

2,855,886

 

Security deposits

 

 

 

 

 

70,168

 

Total Liabilities

 

 

30,268

 

 

 

2,926,054

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001, 5,000,000 shares authorized; 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, par value $0.001, 95,000,000 shares authorized; 14,027,939 shares issued; 12,227,939 and 14,027,939 shares outstanding at June 30, 2017, and December 31, 2016, respectively

 

 

14,028

 

 

 

14,028

 

Additional paid-in capital

 

 

3,200,998

 

 

 

2,779,105

 

Accumulated deficit

 

 

(1,613,176)

 

 

 

(1,354,942)

 

Less: treasury stock, at cost; 1,800,000 shares at June 30, 2017

 

 

(1,548,000)

 

 

 

 

Total Stockholders’ Equity

 

 

53,850

 

 

 

1,438,191

 

Total Liabilities and Stockholders’ Equity

 

$

84,118

 

 

$

4,364,245

 

 

 

 

 

 

 

 

 

 


 

 See accompanying notes to unaudited condensed consolidated financial statements



4




MJ HOLDINGS, INC.

Condensed Consolidated Statements of Operations

For the three and six months ended June 30, 2017 and 2016

(Unaudited)

 

 

 

For the three months

ended June 30,

 

 

For the six months

ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

$

 

 

$

2,139

 

 

$

 

 

$

2,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

246,490

 

 

 

40,281

 

 

 

273,201

 

 

 

58,378

 

Depreciation expense

 

 

167

 

 

 

167

 

 

 

334

 

 

 

334

 

Total operating expenses

 

 

246,657

 

 

 

40,448

 

 

 

273,535

 

 

 

58,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(246,657)

 

 

 

(38,309)

 

 

 

(273,535)

 

 

 

(56,573)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

— 

 

 

 

29

 

 

 

— 

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(246,657)

 

 

 

(38,280)

 

 

 

(273,535)

 

 

 

(56,510)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

— 

 

 

 

— 

 

 

 

— 

 

 

 

— 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations, net of tax

 

 

(246,657)

 

 

 

(38,280)

 

 

 

(273,535)

 

 

 

(56,510)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

— 

 

 

 

29,961

 

 

 

15,301

 

 

 

73,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(246,657)

 

 

$

(8,319)

 

 

 

(258,234)

 

 

 

17,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.020)

 

 

$

(0.003)

 

 

$

(0.022)

 

 

$

(0.004)

 

Discontinued operations

 

 

— 

 

 

 

0.002

 

 

 

0.001

 

 

 

0.005

 

Net income (loss) per common share

 

$

(0.020)

 

 

$

(0.001)

 

 

$

(0.021)

 

 

$

0.001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

12,227,939

 

 

 

14,027,939

 

 

 

12,327,387

 

 

 

14,027,939

 



See accompanying notes to unaudited condensed consolidated financial statements



5




MJ HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2017 and 2016

(unaudited)

 

 

 

 

2017

 

 

 

2016

 

Cash flow from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(258,234)

 

 

$

17,132

 

Less: income from discontinued operations, net of tax

 

(15,301)

 

 

 

(73,642)

 

Loss from continuing operations, net of tax

 

(273,535)

 

 

 

(56,510)

 

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

334

 

 

 

334

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

12,735

 

 

 

(125)

 

Net cash used in operating activities, continuing operations

 

(260,466)

 

 

 

(56,301)

 

Net cash provided by (used in) operating activities, discontinued operations

 

(10,200)

 

 

 

79,282

 

Net Cash Provided by (Used in) Operating Activities

 

(270,666)

 

 

 

22,981

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

Payment of cash through exchange offer (see Note 3)

 

(135,033)

 

 

 

— 

 

Investment in real estate loan receivable

 

 

 

 

 

(150,000)

 

Net cash used in investing activities, continuing operations

 

(135,033)

 

 

 

(150,000)

 

Net cash used in investing activities, discontinued operations

 

— 

 

 

 

— 

 

Net Cash Used in Investing Activities

 

(135,033)

 

 

 

(150,000)

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

— 

 

 

 

— 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

(405,699)

 

 

 

(127,019)

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

463,773

 

 

 

303,368

 

Cash at end of period

$

58,074

 

 

$

176,349

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest to related party

$

45,417

 

 

$

136,250

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing activities:

 

 

 

 

 

 

 

Disposition of real estate business through exchange offer (see Note 3)

$

1,126,107

 

 

$

— 

 



See accompanying notes to unaudited condensed consolidated financial statements



6




MJ HOLDINGS, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

June 30, 2017

 

Note 1 — Interim Financial Statements


The accompanying unaudited condensed 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 condensed 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 condensed consolidated financial statements not misleading have been included. The balance sheet at December 31, 2016, has been derived from the Company’s audited consolidated financial statements as of that date.


The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, that was filed with the SEC on March 30, 2017. The results of operations for the six months ended June 30, 2017, are not necessarily indicative of the results to be expected for the full year.


The unaudited condensed consolidated financial statements include the accounts of the Company and its previously wholly owned subsidiaries, 5353 Joliet, LLC, MJ Havana, LLC, and MJ Sheridan, LLC. Intercompany balances and transactions have been eliminated in consolidation. Effective February 1, 2017, the Company transferred its ownership interests in its wholly owned subsidiaries as part of the exchange transaction discussed below in Note 3.

 

Note 2 — Summary of Significant Accounting Policies


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, 2016. There were no material changes to our significant accounting policies during the interim period ended June 30, 2017.


Recent Accounting Pronouncements


In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance to clarify the principles for recognizing revenue. The core principle of the 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 guidance provides a comprehensive framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. An entity should apply the guidance either retrospectively to each prior reporting period presented or retrospectively with the cumulative adjustment at the date of the initial application. In July 2015, the FASB delayed the effective date of the new guidance to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is now permitted after the original effective date of December 15, 2016. The Company is still evaluating the impact of adopting the new accounting guidance, but does not expect the adoption to have a material impact on its consolidated financial statements.

 



7




Note 3 — Disposition of Real Estate Business

 

On November 22, 2016, in connection with a plan to divest its real estate business, the Company submitted to its shareholders an offer to exchange (the "Exchange Offer") the Company's common stock for shares in MJ Real Estate Partners, LLC, (“MJRE”) a newly formed LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, the Company accepted for exchange 1,800,000 shares of 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 held ownership of the real estate properties, to MJRE. MJRE will also assume the senior notes and any and all obligations associated with the real estate properties and business, effective February 1, 2017.


On February 1, 2017, the 1,800,000 shares of the Company's common stock acquired in the Exchange Offer was recorded as an acquisition of treasury stock at a cost equal to the market value of the shares of the Company's common stock accepted in the exchange offer. The difference of $421,893 between the market value of the treasury stock acquired in the Exchange Offer and the net book value of the assets and liabilities exchanged was recorded as additional paid-in capital due to the common controlling interests between the two entities involved with the Exchange Offer. In addition, $135,033 of cash was transferred to MJRE to cover accrued property taxes and security deposits, less prepaid property insurance premiums, held by the Company that were previously collected from the tenants of the real estate properties exchanged.


The historical results of the disposed assets and liabilities are shown in the Company's financial statements as discontinued operations for periods presented before the exchange. In subsequent periods, the Company's financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to the disposed assets and liabilities.


A summary of the difference between the market value of the treasury stock acquired in the Exchange Offer and the net book value of the assets and liabilities exchanged that was recorded as additional paid-in capital on February 1, 2017, is as follows:

  

 

 

February 1,

2017

Treasury stock acquired via exchange

 

 

 

 

1,800,000 shares at $0.86 per share (market value as of 1/10/2017)

 

$

1,548,000

 

 

 

 

 

 

Net book value of assets and liabilities exchanged:

 

 

 

 

Land

 

$

747,389

 

Building and improvements

 

 

3,145,167

 

Less: accumulated depreciation

 

 

(266,406)

 

Real estate property, net

 

 

3,626,150

 

Deferred rent receivable

 

 

99,359

 

Deferred leasing costs

 

 

127,360

 

Total assets exchanged

 

 

3,852,869

 

Notes payable, net of unamortized debt issuance costs

 

 

(2,723,292)

 

Other accrued liabilities

 

 

(3,470)

 

Net book value of assets and liabilities exchanged

 

$

1,126,107

 

 

 

 

 

 

Change in additional paid-in capital

 

$

421,893

 

 

 

 

 

 



8




A summary of the results of operations reported as discontinued operations for the three and six months ended June 30, 2017 and 2016, is as follows:


 

For the three months

ended June 30,

 

For the six months

 ended June 30,

 

2017

 

2016

 

2017

 

2016

Net revenues

$

— 

 

 

$

169,121

 

 

$

57,978

 

 

$

337,994

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property expenses

 

— 

 

 

 

39,243

 

 

 

9,883

 

 

 

63,699

 

Depreciation expense

 

— 

 

 

 

28,871

 

 

 

9,659

 

 

 

57,742

 

Total operating expenses

 

— 

 

 

 

68,114

 

 

 

19,542

 

 

 

121,441

 

Operating income

 

— 

 

 

 

101,007

 

 

 

38,436

 

 

 

216,553

 

Interest expense, net - related party

 

— 

 

 

 

(68,125)

 

 

 

(22,708)

 

 

 

(136,250)

 

Interest expense, net

 

— 

 

 

 

(2,921)

 

 

 

(427)

 

 

 

(6,661)

 

Income before income taxes

 

— 

 

 

 

29,961

 

 

 

15,301

 

 

 

73,642

 

Provision for income taxes

 

— 

 

 

 

— 

 

 

 

— 

 

 

 

— 

 

Income from discontinued operations, net of tax

$

— 

 

 

$

29,961

 

 

$

15,301

 

 

$

73,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Note 4 — Going Concern

 

The Company’s 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. During the first quarter of 2017, the Company divested their real estate properties and associated business. During the six months ended June 30, 2017, the Company generated a loss from continuing operations of $273,535 and used $260,466 of cash for continuing operations. Subsequent to the divestiture of its real estate business, the Company does not expect to generate revenues for the next six to nine months. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.


The Company is developing mobile and computer based applications focused on providing cannabis for medical use content and educational materials to licensed medical professionals, in addition to matching patients with medical professionals who are familiar with the therapeutic effects and indications of cannabinoids and making social connections by and between cannabis users.


Our goal is to develop a “freemium” based business model, where we offer our services for free in an effort to build and develop a user-base.  We expect to generate revenues in the future through advertising and by marketing premium products and services to our growing user-base.  


Although we can provide no assurances, we believe our cash on hand will provide sufficient liquidity and capital resources to fund our business for the next twelve months.

 

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. 



9




Note 5 — Related Party Transactions

 

During the six months ended June 30, 2017 and 2016, the Company paid $45,417 and $136,250, respectively, for interest due pursuant to $2,725,000 of promissory notes held by Chemtov Mortgage Group (“CMG”), an entity wholly-owned by the Company's previous co-CEO and current shareholder, Shawn Chemtov. On February 1, 2017, the promissory notes held by CMG were exchanged as part of the Exchange Offer discussed above in Note 3.


During the six months ended June 30, 2017, the Company paid $75,000 to each of the Company’s co-CEOs, Mr. Laufer and Mr. Chemtov, as a result of one-time bonuses earned as part of employment agreements executed in April 2017.


In May 2017, Mr. Chemtov resigned from his position as co-CEO of the Company and from its Board of Directors. As part of the separation, the Company paid Mr. Chemtov $75,000 during the six months ended June 30, 2017.


In May 2016, the Company invested $150,000 in a $1,750,000 promissory note secured by the assignment of a mortgage on real estate property located in Miami, Florida. The mortgage was held by CMG, an entity wholly-owned by the Company's previous co-CEO and current shareholder, Shawn Chemtov. The Company did not incur any loan origination fees or any other costs associated with the mortgage investment. The promissory note paid interest at 12% per annum and provided for cash interest payments on a monthly basis, commencing on July 1, 2016. The Company earned $2,139 of interest income, recorded as revenue, as a result of the $150,000 investment during the three and six months ended June 30, 2016. The outstanding principal amount and unpaid interest were repaid in September 2016.


Note 6 Outstanding Warrants

 

A summary of warrants issued, exercised and expired during the six months ended June 30, 2017, is as follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

Avg.

 

 

 

 

 

Exercise

Warrants:

 

Shares

 

 

Price

Balance at January 1, 2017

 

 

166,665

 

 

$

5.88

Issued

 

 

 

 

 

Exercised

 

 

 

 

 

Expired

 

 

 

 

 

Balance at June 30, 2017

 

 

166,665

 

 

$

5.88

 

 

 

 

 

 

 

 

 

Note 7 — Basic and Diluted Earnings (Loss) per Common Share


Basic earnings (loss) per share is computed by dividing the net income or net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated using the treasury stock method and reflects the potential dilution that could occur if warrants were exercised and were not anti-dilutive.


For the three and six months ended June 30, 2017 and 2016, basic and diluted earnings (loss) per common share were the same since there were no potentially dilutive shares outstanding during the respective periods. Outstanding warrants as of June 30, 2017 and 2016, to purchase 166,665 shares of common stock were not included in the calculations of diluted income per share because the impact would have been anti-dilutive for each of the periods presented.





10




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, 2016, and in our subsequent filings with the SEC, and include, among others, the following: marijuana is illegal under federal law, competition, our business is dependent on laws pertaining to the marijuana industry, government regulation, our business model depends on the availability of private funding, we will be subject to general real estate risks and the availability, 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. 


Business Overview


MJ Holdings owned and leased real estate to licensed operators in the regulated cannabis industry.  Additionally, we are developing desktop and mobile social, meet-up and health and wellness applications. Our mobile and computer based applications are focused on providing cannabis for medical use content and educational materials to licensed medical professionals, in addition to matching patients with medical professionals who are familiar with the therapeutic effects and indications of cannabinoids and making social connections by and between cannabis users.


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 LLC formed for the sole purpose of effecting the Exchange Offer. On January 10, 2017, we accepted for exchange 1,800,000 shares of our common stock in exchange for 1,800,000 shares of MJRE's common units, representing membership interests in MJRE. Effective February 1, 2017, we transferred our ownership interests in the real estate properties and our subsidiaries, through which we held ownership of the real estate properties, to MJRE. Effective February 1, 2017, MJRE assumed the senior notes and any and all obligations associated with the real estate properties and business.


The MJ Real Estate Partners separation was due to our inability to scale and expand our real estate business as previously planned and our intention to engage in business opportunities where we believe we have greater growth opportunities to which capital will be more readily available.



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How We Plan to Generate Revenue


Our Digital Assets

We operate and are developing mobile and computer based applications focused on:


·

providing cannabis for medical use content and educational materials to licensed medical professionals,


·

matching patients with medical professionals who are familiar with the therapeutic effects and indications of cannabinoids and;


·

making social connections by and between cannabis users.


We have not generated any revenue from our digital assets and do not anticipate generating revenues in the next six to nine months. Our goal is to develop a “freemium” based business model, where we offer our services for free in an effort to build and develop a user-base.  We expect to generate revenues in the future through advertising and by marketing premium products and services to our growing user-base.  


The Company does not and will not, until such time as Federal law allows, grow, harvest, distribute or sell marijuana or any substances that violate the laws of the United States of America.


Critical Accounting Policies and Estimates

 

There were no material changes to our critical accounting policies and estimates during the interim period ended June 30, 2017.


Please see our Annual Report on Form 10-K for the year ended December 31, 2016, for a discussion of our critical accounting policies and estimates and their effect, if any, on the Company's financial results.


Results of Operations for the Three and Six Months Ended June 30, 2017, compared to the Three and Six Months Ended June 30, 2016


Revenue

 

We generated no revenue from continuing operations for the three and six months ended June 30, 2017.


We generated $2,139 of interest income, recorded as revenue, during the three and six months ended June 30, 2016, as a result a $150,000 investment in May 2016. The $150,000 investment was in a $1,750,000 promissory note secured by the assignment of a mortgage on real estate property located in Miami, Florida. The promissory note was held by CMG, an entity wholly-owned by the Company's previous co-CEO and current shareholder, Shawn Chemtov. The promissory note earned interest at 12% per annum and provided for cash interest payments on a monthly basis, commencing on July 1, 2016. The outstanding principal amount and unpaid interest were repaid in September 2016.


Operating Expenses


General and administrative expenses increased by $206,209 and $214,823, respectively, to $246,490 and $273,301 for the three and six months ended June 30, 2017, compared with general and administrative expenses of $40,281 and $58,378, respectively, for the three and six months ended June 30, 2016. The increase in general and administrative expenses during the three and six months ended June 30, 2017, was primarily attributed to $238,942 of compensation recorded for the Company’s current CEO and previous co-CEO, partially offset by a $30,000 reduction in travel expenses incurred during the interim period ended June 30, 2017.

 



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Loss from Continuing Operations


We had a loss from continuing operations of $246,657 and $273,535, respectively, for the three and six months ended June 30, 2017, compared with a loss from continuing operations of $38,280 and $56,510, respectively, for the three and six months ended June 30, 2016. The increases of $208,377 and $217,025, respectively, in the loss from continuing operations during the three and six months ended June 30, 2017, were primarily driven by the increases in general and administrative expenses discussed above.


Discontinued Operations


As a result of the Exchange Offer, the Company transferred its ownership interests in the real estate properties and its subsidiaries, through which the Company held ownership of the real estate properties, to MJRE, effective February 1, 2017. The historical results of the disposed assets and liabilities are shown in the Company's financial statements as discontinued operations for periods presented before the exchange. In subsequent periods, the Company's financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to the disposed assets and liabilities.


During the three and six months ended June 30, 2017, we generated income from discontinued operations of $0 and $15,301, respectively, compared to income from discontinued operations of $29,961 and $73,642, respectively, during the three and six months ended June 30, 2016. The decreases in income from discontinued operations are primarily attributed to generating one month of income from discontinued operations prior to the divestiture in February 2017, compared with three and six months of income during the interim periods ended June 30, 2016.

 

Liquidity and Capital Resources


The following table summarizes the cash flows for the six months ended June 30, 2017 and 2016:


 

 

For the six months

ended June 30,

 

 

2017

 

2016

Cash Flows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

Continuing operations

 

$

(260,466)

 

$

(56,301)

Discontinued operations

 

 

(10,200)

 

 

79,282

Net cash provided by (used in) operating activities

 

 

(270,666)

 

 

22,981

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

Continuing operations

 

 

(135,033)

 

 

(150,000)

Discontinued operations

 

 

— 

 

 

— 

Net cash used in investing activities

 

 

(135,033)

 

 

(150,000)

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

— 

 

 

— 

  

 

 

 

 

 

 

Net decrease in cash

 

 

(405,699)

 

 

(127,019)

Cash at beginning of period

 

 

463,773

 

 

303,368

 

 

 

 

 

 

 

Cash at end of period

 

$

58,074

 

$

176,349

 

 

 

 

 

 

 


The Company had cash of $58,074 at June 30, 2017, compared with cash of $463,773 at December 31, 2016, a decrease of $405,699. The decrease in cash during the six months ended June 30, 2017, was attributed to cash used in operating activities of $207,266 and cash used in investing activities of $135,033.

 



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Operating Activities


Continuing Operations


We had net cash used in operating activities for continuing operations of $260,466 for the six months ended June 30, 2017, which consisted of a net loss from continuing operations of $273,535; partially offset by depreciation of $334 and an increase in accounts payable and accrued liabilities of $12,735.


We had net cash used in operating activities for continuing operations of $56,301 for the six months ended June 30, 2016, which consisted of a net loss from continuing operations of $56,510 and a decrease in accounts payable and accrued liabilities of $125; partially offset by depreciation of $334.


Discontinued Operations


We had net cash used in operating activities from discontinued operations of $10,200 for the six months ended June 30, 2017, which consisted of income from discontinued operations of $15,301, non-cash charges of $9,760; offset by an increase in working capital requirements of $35,261, consisting of a decrease in accounts payable and accrued liabilities of $41,449, partially offset by a decrease in prepaid and other assets of $6,188.


We had net cash provided by operating activities from discontinued operations of $79,282 for the six months ended June 30, 2016, which consisted of income from discontinued operations of $73,642, non-cash charges of $56,648; partially offset by an increase in working capital requirements of $51,008, consisting of a decrease in accounts payable and accrued liabilities of $26,267 and a decrease in security deposits of $25,035, partially offset by a decrease in prepaid assets and other assets of $294.


Investing Activities


During the six months ended June 30, 2017, $135,033 of cash was transferred to MJRE as part of the Exchange Offer to cover accrued property taxes and security deposits, less prepaid property insurance premiums, that were previously collected from the tenants of the real estate properties divested.


During the six months ended June 30, 2016, we invested $150,000 in a $1,750,000 promissory note secured by the assignment of a mortgage on real estate property located in Miami, Florida. The promissory note paid interest at 12% per annum and provided for cash interest payments on a monthly basis, commencing on July 1, 2016.

 

Financing Activities


There were no financing activities during the six months ended June 30, 2017 and 2016.


Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements.


Seasonality


We do not consider our business to be seasonal.


Inflation and Changing Prices


Neither inflation or changing prices for the three and nine months ended September 30, 2016, had a material impact on our operations.



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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

 

Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.

 

Changes in Internal Control Over Financial Reporting

 

During the interim period ended June 30, 2017, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

 

None.

 



15



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

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).




16




SIGNATURES

 

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

 

 

MJ HOLDINGS, INC.

 

 

 

Date: August 8, 2017

By:

/s/ Adam Laufer

 

Adam Laufer

 

Chief Executive Officer and

Chief Financial Officer

(Principal Executive Officer and

Principal Accounting Officer)

 




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