Note 1 - Organization and Basis of Presentation
Organization and Line of Business
The Company is in the business of providing
infrastructure assets to licensed producers, processors and retailers engaged in the cannabis industry. The Company plans to acquire
further assets such as equipment, real estate and technologies beyond those described below through the use of cash flow generated
by operations.
In May 2017, the Company formed MYHI-AZ to
acquire equipment to service the growing cannabis industry. In September 2017, the Company entered into a consulting agreement
with D9 Manufacturing, "D9," to provide D9 customers with infrastructure equipment. Also in September 2017, MYHI-AZ purchased
2 intermodal grow containers from D9 to be used in a grow operation in Arizona. MYHI-AZ leased the grow containers to D9 for 3
years with the right to extend the lease for an additional 2 years. The lease began August 15, 2017. The lease provided for a monthly
lease rate of $20,000 a month and required advance payment for operating supplies and expenses. The monthly lease rate was recorded
as Revenue and an Account Receivable while the advances were recorded as an Other Receivable. The monthly lease payments were to
commence on harvesting of the first crop. The containers were planted in October 2017 with an expected harvest in January 2018.
The initial grow operation encountered a power failure which ultimately resulted in the loss of the crop. The loss of this crop
resulted in a deferral of collection of the lease rental payments and the operating cost payments. The power failure highlighted
electrical issues with the facility where the containers are being used and improvements to the containers that could be made.
The container improvements and facility power requirement issue took a few months to resolve.
Effective September 11, 2018, MYHI-AZ and D9
agreed to convert the current amount due under the operating lease, representing $150,000 in lease payments and $22,294 in operating
expenses, into a $135,000 note payable, (the "Note"), with a term of 3 years and interest rate of 7% per annum, and to
capitalize $35,000 for improvements to the containers. The first payment on the Note was due October 3, 2018. The Parties also
agreed to terminate the current lease effective March 31, 2018 and replace it with a new lease beginning July 1, 2018 with lease
payments of $5,000 per month beginning November 1, 2018.
On August 18, 2018, the Company entered into
an Exchange Agreement (the “Exchange Agreement”) with Alchemy Capital LLC (“Alchemy”) pursuant to which
Alchemy, the sole shareholder of One Lab Co (“Labco”), agreed to exchange 100% of the capital stock of Labco for 88,000,000
restricted shares of the Company (the “MYHI Shares”). The Exchange Agreement called for the issuance of 20,000,000
MYHI Shares at Closing and 68,000,000 MYHI Shares after certain equipment under order by Labco at the time (the “Equipment”)
was delivered pursuant to a Lease Agreement (the “Lease”) between Labco and Workforce Labor Solutions, LLC (“the
Lessee”) . The Equipment consists of a state-of-the-art intermodal extraction laboratory, engineered and designed specifically
for processing cannabis. The Lease calls for monthly payments of $25,000 and has a five year term commencing November 1, 2018 with
an option to renew for a second five year term.
In conjunction
with the acquisition of One Labco and its tangible assets including the Equipment and the Lease, the Company also acquired intangible
assets such as industry relationships, access to capital resources and acquisition opportunities. These intangible assets were
classified as Goodwill.
MYHI
issued the 88,000,000 shares of restricted common stock in accordance with the terms of the Exchange Agreement and recorded the
acquisition of the Equipment at a cost value of $159,666 and Goodwill of $4,605,134.
On December
31, 2018, the Company reviewed the valuation of the intangible assets acquired. While satisfied that the Company would continue
to realize value from them, the Company decided to write Goodwill down to $1,200,000. This amount reflected the discounted value
of the Lease. At that time, the Lease was in good standing with all required lease payments up to date.
On May
31, 2019, the Company conducted a further review of the intangible assets. At that date, the Lease was four months in arrears.
While the Company believes that the Lease payments will be brought current in the near future, it decided to record an additional
impairment of $1,200,000 to Goodwill, bringing its balance to $nil.
Going Concern
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate
continuation of the Company as a going concern. The Company has incurred a net loss of $5,434,865 and provided cash for operations
of $51,784 for the year ended March 31, 2019 and has an accumulated deficit of $15,125,387 and a working capital deficit of $227,389
as of March 31, 2019. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.
These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as
a going concern. Management plans to continue to raise capital to fund the Company’s operations and believes that it can
continue to raise equity or debt financing to support its operations until the Company is able to generate positive cash flow from
operations.
Note 2 – Summary of Significant
Accounting Policies
Basis of Presentation
The accompanying
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“US GAAP”). The accompanying consolidated financial statements have been presented in United States
Dollars ($ or “USD”). The fiscal year end is March 31.
Principles of Consolidation
The accounts of the Company and its wholly–owned
subsidiaries GreenLife Botanix, MYHI-AZ and One Lab Co are included in the accompanying consolidated financial statements. All
intercompany balances and transactions were eliminated on consolidation.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the 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. It
is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment
involved.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand
and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months
or less.
Revenue Recognition
As of January 1, 2018, we adopted ASU No. 2014-09,
“Revenue from Contracts with Customers” (ASU 2014-09). Leasing revenue recognition is specifically excluded
and therefore the new standard is only applicable to service fee and consulting revenue. A five-step model has been introduced
for an entity to apply when recognizing revenue. The new guidance also includes enhanced disclosure requirements. The
guidance was effective January 1, 2018. The adoption did not have an impact on our financial statements.
Revenue represents lease revenue for
the grow containers pursuant to the Company's lease with D9 and extraction equipment lease pursuant to the Labco share exchange
agreement. For the year ended March 31, 2019 the Company recorded revenue of $141,120 from both leases.
Fixed Assets
Fixed Assets are stated at cost. Depreciation
is provided on fixed assets using the straight-line method over an estimated service life of five years for equipment.
The cost
of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures which increase the life
of an asset are capitalized and depreciated over the estimated remaining useful life of the asset.
Intangible Assets
The Company accounts for intangibles in accordance
with ASC 350, Intangible-Goodwill and Other. The Company evaluates intangibles, at a minimum, on an annual basis and whenever events
and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of intangibles is tested by comparing
the carrying amount to the fair value. The fair values are estimated using undiscounted projected net cash flows. If the carrying
amount exceeds its fair value, intangibles are considered impaired and a second step is performed to measure the amount of impairment
loss, if any. The Company evaluates the impairment of intangibles as of the end of each fiscal year or whenever events or changes
in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. These circumstances include:
|
·
|
a significant decrease in the market value of an asset;
|
|
·
|
a significant adverse change in the extent or manner in which an
asset is used; or
|
|
·
|
an accumulation of costs significantly in excess of the amount originally
expected for the acquisition of an asset.
|
Income Taxes
The Company accounts for income taxes in accordance
with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income
taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties
that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized
tax benefits are classified as additional income taxes in the statements of operations. The open tax years are 2011, 2012, 2013,
2014, 2015, 2016, 2017 and 2018.
The Company has no tax positions at March
31, 2019 or March 31, 2018, for which the ultimate deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility.
Basic and Diluted Loss Per Share
Earnings
per share is calculated in accordance with the ASC Topic 260,
Earnings Per Share
. Basic earnings per share is based upon
the weighted average number of common shares outstanding. Diluted earnings per share is based on the assumption that all dilutive
convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method.
Under this method, 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.
Recent Accounting Pronouncements
Recent authoritative guidance issued by the
FASB (including technical corrections to the FASB Accounting Standards Codification), the American Institute of Certified Public
Accountants, and the SEC, did not, or are not expected to have a material effect on the Company’s consolidated financial
statements.
Note 3 – Note Receivable
In May 2017, the Company formed MYHI-AZ to
acquire equipment to service the growing cannabis industry. In September 2017, the Company entered into a consulting agreement
with D9 Manufacturing, "D9," to provide D9 customers with infrastructure equipment. Also in September 2017, MYHI-AZ purchased
2 intermodal grow containers from D9 to be used in a grow operation in Arizona. MYHI-AZ leased the grow containers to D9 for 3
years with the right to extend the lease for an additional 2 years. The lease began August 15, 2017. The lease provided for a monthly
lease rate of $20,000 a month and required advance payment for operating supplies and expenses. The monthly lease rate was recorded
as Revenue and an Account Receivable while the advances were recorded as Other Receivable. The monthly lease payments were to commence
on harvesting of the first crop. The containers were planted in October 2017 with an expected harvest in January 2018. The initial
grow operation encountered a power failure which ultimately resulted in the loss of the crop. The loss of this crop resulted in
a deferral of collection of the lease rental payments and the operating cost payments. The power failure highlighted electrical
issues with the facility where the containers were being used and improvements to the containers that could be made. While the
container improvements were made, the facility power requirement issues were never fully resolved.
Effective September 11, 2018, MYHI-AZ and D9 agreed to convert the
current amount due under the operating lease, representing $150,000 in lease payments and $22,294 in operating expenses, into a
$135,000 note payable, (the "Note"), with a term of 3 years and interest rate of 7% per annum, and to capitalize $35,000
for improvements to the containers. The first payment on the Note was due October 3, 2018.
In addition, and in anticipation of the resolution of the power
issues at the grow facility, the Parties agreed to terminate the current lease effective March 31, 2018 and replace it with a new
lease beginning July 1, 2018 with lease payments of $5,000 per month beginning November 1, 2018. This replacement lease was terminated
on March 31, 2019 as D9 was unable to successfully complete a harvest due to the ongoing power problems and a shift in the focus
of their company to extraction only. The Note however remained in full force and effect.
As of
March 31, 2019, D9 was up to date with the required Note payments. The Company is confident that D9 will continue to make the
require
d payments for the full term of the Note
as D9 has entered into a partnership with Verano Holdings LLC effective February 27, 2019 for the provision of extraction services.
This relationship will provide D9 with a more stable platform from which to operate their business.
Note
4 – Fixed Assets
Fixed
assets consist of the following at March 31, 2019:
|
|
For the Year Ended
|
|
|
|
March 31, 2019
|
|
Extraction Equipment
|
|
$
|
159,667
|
|
Grow Equipment
|
|
|
235,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(88,811
|
)
|
Total
|
|
$
|
305,856
|
|
Note
5 – Goodwill
The
Company’s goodwill balance is solely attributable to acquisitions. As of March 31, 2019, the Company impaired a total of
$4,605,134 related to the Exchange Agre
ement with Labco.
Note 6 – Accrued liabilities
As of March 31, 2019, total accrued liabilities
consisted of $151,445. A total of $138,945 is related to a liability due to Brent McMahon for Greenlife selling and administrative
expenses. A total of $12,500 is related to Greenlife office lease expenses.
Note 7 – Revenue
Revenue represents lease revenue for the grow
containers pursuant to the Company's lease with D9 and extraction equipment lease pursuant to the Labco share exchange agreement.
For the year ended March 31, 2019 the Company recorded revenue of $141,120 from both leases.
Note 8 – Equity
Common Stock
Effective June 12, 2017, the Company increased
its authorized shares of common stock to 500,000,000 shares with a par value of $0.0001 per share. The Company has 250,000,000
shares of preferred stock with a par value of $0.0001 per share.
On June 12, 2017, the Company issued 100,000
shares of Series B Convertible Preferred stock to an outside consulting firm for consulting services, valued at $109,700, which
was recorded as consulting fees in the three months ended June 30, 2017. Due to the super voting provision of the Series B Convertible
Preferred stock the Company recorded a loss on valuation of the shares of $2,084,300, the equivalent of 20,000,000 shares less
the associated consulting expense of $109,700.
During the year ended March 31, 2018, the Company
converted $684,285 of convertible notes payable into 20,947,193 shares of free trading common stock of the Company.
During the year ended March 31, 2018 the Company
issued 2,570,000 shares of restricted Common Stock pursuant to consulting agreements valued at $329,184.
During year ended March 31, 2019 the Company
issued the following:
|
·
|
Converted $290,260 of convertible notes into 10,099,332 shares of
common stock.
|
|
·
|
Issued 305,000 shares of common stock valued at $16,424 pursuant
to consulting agreements, and services rendered.
|
|
·
|
Issued 9,500,000 shares of common stock relating to cashless warrants
issued in conjunction with convertible notes issued to St. George Investments LLC valued at $597,000.
|
|
·
|
Issued 88,000,000 shares of common stock valued at $4,605,134 pursuant
to the share exchange agreement for Labco.
|
|
·
|
Recorded 280,000 shares returned by D9 as per termination agreement
valued at $8,120.
|
Warrants
Pursuant to the Warrant to Purchase Shares
of Common Stock Agreement, dated June 30, 2017, the Company granted the right to St. George Investments LLC, to purchase at any
time on or after the Issue Date of June 30, 2017 until the date which is the last calendar day of the month in which the fifth
anniversary of the Issue Date occurs a number of fully paid and non-assessable shares of Company's common stock, par value $0.0001
per share, equal to $173,000 divided by the Market Price as of the Issue Date. The closing stock price on June 30, 2017 was $0.1273,
equating to 1,358,995 shares of common stock. The warrant was issued in connection with the Securities Purchase Agreement, dated
June 30, 2017. Pursuant to ASC 470-20-25-2 the company fair valued the warrants at $115,100 to be debited to warrant expense for
the year ended March 31, 2018. The Warrants contain a ratcheting feature for future share issuances. The Company issued shares
in July 2017 for conversion of notes payable and in September 2017 for consulting agreements. These share issuances were for convertible
notes and contracts that were in existence prior to the execution of the St. George agreement and were exempt from any ratcheting
calculation, however subsequent issues to St. George on conversion of their convertible notes are subject to the ratcheting calculation.
Pursuant to a Warrant Settlement Agreement
executed June 27, 2018, the Company agreed to issue 8,141,005 additional warrants to settle the ratchet provision of the original
warrant. The Company recorded additional warrant expense of $491,850 pursuant to ASC 470-20-25-2 as the fair value of the warrants.
Effective April 19, 2018, the Company, pursuant to the Warrant to Purchase Shares of Company Stock which was issued in conjunction
with the St George Investments LLC Securities Purchase Agreement dated June 30, 2017, issued 3,500,000 shares of Company stock
at $.0826 per share, valued at $289,100. On June 27, 2018, the Company agreed to issue an additional 6,000,000 shares of Company
common stock to fully settle the warrant at a value of $433,200 or $0.0705 per share. The Company recorded additional warrant expense
of $105,150 to value the warrants exercised at market price.
A summary of the status of the Company’s outstanding
stock warrants and changes during the periods is presented below:
|
|
Shares available to purchase with warrants
|
|
Weighted
Average
Price
|
|
Weighted
Average
Fair Value
|
Outstanding, March 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Issued
|
|
|
1,358,995
|
|
|
$
|
.1273
|
|
|
$
|
.1273
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expired
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Outstanding, March 31, 2018
|
|
|
1,358,995
|
|
|
$
|
.1273
|
|
|
$
|
.1273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2018
|
|
|
1,358,995
|
|
|
$
|
.1273
|
|
|
$
|
.1273
|
|
Issued pursuant to agreement
|
|
|
8,141,005
|
|
|
$
|
.0604
|
|
|
$
|
.0604
|
|
Exercised April 19, 2018
|
|
|
(3,500,000
|
)
|
|
$
|
.0826
|
|
|
$
|
.0826
|
|
Exercised June 27, 2018
|
|
|
(6,000,000
|
)
|
|
$
|
.0705
|
|
|
$
|
.0705
|
|
Outstanding, March 31, 2019
|
|
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Range of Exercise Prices
|
|
Number Outstanding 3/31/2019
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
$0.0327-$0.1273
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
Note 9- Income Taxes
The Company accounts for income taxes using
the asset and liability approach Under this approach, deferred tax assets and liabilities are recognized based on anticipated future
tax consequences, using currently enacted tax laws, attributable to temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
The Company has federal net operating loss
carryforwards of approximately $5,434,865 expiring in various years through 2037. The tax benefit of these net operating losses
has been offset by a full allowance for realization. The use of the net operating loss carryfowards may be limited due to a change
in control.
The Company’s effective tax rate differs from the high statutory
rate for the year ended March 31, 2019, due to the following (expressed as a percentage of pre-tax income):
|
|
|
Federal taxes at statutory rate
|
|
$
|
21.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
5.0
|
%
|
Valuation allowance
|
|
|
(26.0
|
)%
|
Effective income tax rate
|
|
$
|
0.0
|
%
|
As of March 31, 2019, the components of these temporary
differences and the deferred tax asset were as follows:
|
|
|
Deferred Tax assets:
|
|
|
Net operating loss carryforward
|
|
$
|
1,141,322
|
|
Less: valuation allowance
|
|
|
(1,141,322
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
Note 10 - Notes Payable
At March 31, 2019 the Company had outstanding
convertible notes payable to third parties in the amount of $98,553 The notes had interest rates of 3%-12% and had conversion
provision allowing the holder to convert the note into shares of the Company at a discount. This is referred to as the Beneficial
Conversion Feature, "BCF". Due to the fact that the notes could be converted immediately or any time thereafter, there
is no amortization of expense, so the Company has elected to record an expense in the current year for the difference between
the BCF and the share value on the date the note was executed. This amount cannot
exceed
the value of the note. This resulted in an expense of $0 and $471,500 for the year ended March 31, 2019 and 2018 respectively.
The following details outstanding convertible notes as of March 31, 2019:
Note Holder
|
|
Amount
|
|
Conversion Terms
|
Andrew
Cervasio
|
|
$
|
11,092
|
|
|
Lesser
of $0.03 or 80% lowest closing bid 15 days prior to conversion
|
St.
George Financial
|
|
$
|
87,461
|
|
|
180
days from closing at lower of 65% of avg. 2 lowest closing bid 15 days prior to conversion
|
|
|
$
|
98,553
|
|
|
|
Note
11 - Related Party Transactions
Effective
April 1, 2017, Alan Smith and Richar
d Stifel assigned their consulting agreements and all future amounts due under the
agreement to Evolution Equities Corp, "Evolution" and RGS Resources LLC, "RGS" respectively. Evolution and
RGS are related parties due to Mr. Smith’s and Mr. Stifel's ownership interest and positions in those companies. Evolution
and RGS were paid $90,000 and $60,000 respective for the year ended March 31, 2019.
Note 12 – Officer fees
As of March 31, 2019, total officer fees paid
were $90,000 to the Company’s CEO and Director. Additionally, a total of $60,000 was paid to the former CFO and Director
of the Company.
Note 13 – Commitments and Contingencies
None.
Note 14 – Subsequent Events
To secure working capital for future operations,
on April 24, 2019, Mountain High Acquisitions Corp. (“
MYHI
”) entered into a Securities Purchase Agreement with
St. George Investments, LLC (“
St. George
”). In connection with this agreement, MYHI issued to St. George a
10% convertible promissory note (the “
Note
”) in the principal amount of $112,500, due on April 23, 2020. The
Note is convertible into common stock at 65% of the average of the two lowest closing bid prices for MYHI’s common stock
during the twenty trading days immediately preceding the date of the conversion, subject to adjustment as provided in the Note.
The Note contains a 10% original issue discount. The note may be prepaid by MYHI on the terms set forth in the Note.