Note
1 - Organization and Basis of Presentation
Organization and Line of Business
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 ability to extend the lease for an additional 2 years. The lease began August 15, 2017. The lease provides for a
monthly lease rate of $20,000 a month and requires advance payment for operating supplies and expenses. The monthly lease rate
is recorded as revenue and an Account Receivable while the advances are recorded as an Other Receivable. Both amounts were due
when the crop is harvested. 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 the crop has resulted in a
deferral of collection of the lease rental payments and the operating cost payments. The power failure highlighted additional issues
with the containers and the facility where the containers are being used. The container issues and facility power requirement issue
took a few months to resolve.
Effective September 11, 2018, MYHI-AZ and D9
Manufacturing Corp., (the "Parties"), agreed to convert the current amount due under the operating lease, representing
$150,000 lease payments and $22,294 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 is 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 $5,000.00 per month beginning November 1, 2018.
Effective August 18, 2018 (the “Effective
Date”), Mountain High Acquisitions Corp, (“MYHI”), on the one hand, and One Lab Co (“Labco”) and
Alchemy Capital, LLC (the “Alchemy”), on the other hand, entered into an Exchange Agreement (the “Exchange Agreement”)
pursuant to which Alchemy, the sole shareholder of Labco, agreed to exchange 100% of the capital stock of Labco for 88,000,000
restricted shares of MYHI (the “MYHI Shares”) in accordance with the following schedule: 20,000,000 MYHI shares at
Closing and 68,000,000 MYHI Shares after certain equipment currently under order by Labco (the “Equipment”) is delivered
to the lessee under a lease agreement between Labco and the lessee (the “Lease”). Additionally, Alchemy agreed to pay
monthly lease payments of $25,000 to Labco beginning ten days after the Effective Date and until the Equipment is delivered. The
Equipment consists of a state-of-the-art intermodal extraction laboratory engineered and designed specifically for processing cannabis.
MYHI issued the 20,000,000 shares of restricted common stock on August 20, 2018 and recorded Goodwill of $1,290,000.
Going Concern
The accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”),
which contemplate continuation of the Company as a going concern. The Company has incurred a net loss of $733,673 and used cash
for operations of $1,484,933 for the six months ended September 30, 2018, and has an accumulated deficit of $(10,424,195) and a
working capital deficit of $(394,151) as of September 30, 2018. These conditions raise substantial doubt as to the Company’s
ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern. Management plans to continue to raise capital to fund the Company’s operations
and believes that it can continue to raise equity or debt financing to support its operations until the Company is able to generate
positive cash flow from operations.
Note 2 – Summary of Significant
Accounting Policies
Basis
of Presentation
The accompanying consolidated financial statements have been
prepared in conformity with US GAAP. The accompanying consolidated financial statements have been presented in United States Dollars
($ or “USD”). The fiscal year end is March 31.
Principles of Consolidation
The accounts of the Company and its wholly–owned
subsidiary GreenLife Botanix and MYHI-AZ 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.
Deposits
The Company has recorded as deposits amounts
paid by Labco for equipment orders.
Notes Receivable-Current and Long Term
The Company has recorded a Note Receivable
from D9 in an aggregate amount of $135,000. Amounts due with the next 12 months have been classified as Current Assets Note Receivable
Current and the balance recorded as Other Asset-Note Receivable Long Term. Interest accrued on the note is added to the long term
balance.
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 six months ended September 30, 2018, the Company recorded revenue of $50,000 and $11,875 from the Labco lease and D9 lease,
respectively. Revenue from D9 is recognized over the life of the lease as Deferred Revenue on the Balance Sheet.
Fixed Assets
Fixed assets are stated at cost. Depreciation
is calculated 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 ass
et
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:
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•
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a
significant decrease in the market value of an asset;
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•
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a
significant adverse change in the extent or manner in which an asset is used; or
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•
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the
Company has record as Other Assets-Goodwill an accumulation of costs significantly in
excess of the amount originally expected for the acquisition of an asset
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The Company
has recorded $1,290,000 as Other Assets-Goodwill which represents the market value of the initial shares issued pursuant to the
Share Agreement, 20,000,000 shares of restricted common stock at $0.0645 per share.
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 September 30, 2018 or September 30, 2017, 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 – 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 to 20,000,000 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 the Six months ended September 30, 2018,
the Company converted $45,262 of convertible notes into 1,411,488 shares of common stock, issued 80,000 shares of common stock
valued at $6,080 pursuant to consulting agreements, issued 9,500,000 shares of common stock relating to a cashless warrants issued
in conjunction with convertible notes issued to St. George Investments LLC, and issued 20,000,000 shares of common stock valued
at $1,290,000 pursuant to the share exchange agreement for Labco.
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 for the fair value of the warrants.
Effective April 19, 2018, the Company, pursuant to the Warrant to Purchase Shares of Company Stock which was
i
ssued in conjunction
with the St George Investments LLC Securities Purchase Agreement dated June 30, 2017, issued 3,500,000 shares of Company stock
at $0.0826 per share, valued at $289,100. On June 27, 2018, the Company agreed to issue an additional 6,000,000 shares of the Company’s
common stock to fully settle the warrants at a value of $433,200 or $0.0705 per share. The Company recorded additional warrant
expense of $105,150 to value the warrants exercised at market price.
A summary of the status of the Company’s outstanding
stock warrants and changes during the periods is presented below:
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Shares available to purchase with warrants
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Weighted
Average
Price
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Weighted
Average
Fair Value
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Outstanding, March 31, 2017
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—
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$
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—
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$
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—
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Issued
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1,358,995
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$
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0.1273
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$
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0.1273
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Exercised
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—
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$
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—
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$
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—
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Forfeited
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—
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$
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—
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$
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—
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Expired
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—
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$
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—
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$
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—
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Outstanding, March 31, 2018
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1,358,995
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$
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0.1273
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$
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0.1273
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Outstanding, March 31, 2018
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1,358,995
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$
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0.1273
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$
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0.1273
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Issued pursuant to agreement
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8,141,005
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$
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0.0604
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$
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0.0604
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Exercised April 19, 2018
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(3,500,000
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)
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$
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0.0826
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$
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0.0826
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Exercised June 27, 2018
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(6,000,000
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)
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$
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0.0705
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$
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0.0705
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Outstanding, September 30, 2018
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0
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$
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0.0
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$
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0.0
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Range of
Exercise Prices
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Number Outstanding 6/30/2018
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Weighted Average Remaining Contractual Life
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Weighted Average Exercise Price
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$0.0327 - $0.1273
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0
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0.00 years
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$
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0
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Note 4 – Income Taxes
The Company accounts for income taxes using
the asset and liability approach in accounting for income taxes. 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 $4,637,604 expiring in various years through 2038. The tax benefit o
f
these net operating losses has been offset by a full allowance for realization. The use of the net operating loss carryfowards
may be limited due to a change in control.
Income tax expense
(benefit) consists of the following for the three months ended September 30, 2018:
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Current taxes
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$
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—
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Deferred taxes
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33,233
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Less: valuation allowance
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(33,233
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)
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Net income tax provision
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$
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—
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The Company’s
effective tax rate differs from the high statutory rate for three months ended September 30, 2018, due to the following (expressed
as a percentage of pre-tax income):
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Federal taxes at statutory rate
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$
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21.0
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%
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State taxes, net of federal tax benefit
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5.0
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%
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Valuation allowance
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(26.0
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)%
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Effective income tax
rate
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$
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0.0
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%
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As of September 30, 2018,
the components of these temporary differences and the deferred tax assets were as follows:
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Deferred Tax assets:
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Net operating loss carryforward
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$
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832,347
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Less: valuation allowance
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(832,347
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)
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Net deferred tax assets
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$
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—
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Note 5 -
Notes Payable
At September
30, 2018, the Company had outstanding convertible notes payable to third parties in the amount of $333,806. The notes had interest
rates of 3% - 12% and had a conversion provision allowing the holder to convert each note into shares of the Company at a discount.
This is referred to a
s 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.
Note Holder
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Amount
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Conversion Terms
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Andrew Cervasio
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10,873
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Lesser of $0.03 or 80% lowest closing bid 15 days prior to conversion
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St. George Financial
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322,933
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180 days from closing at lower of 65% of avg. 2 lowest closing bid 15 days prior to conversion
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333,806
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Note 6 - Related Party Transactions
Effective April 1, 2017, Alan Smith and Richard
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 each paid $45,000 for the six months ended September
30, 2018. For the six months ended September 30, 2018 and 2017 accruals for Evolution and RGS were $45,000 each.
Note 7 – Commitments and Contingencies
None.
Note 8 – Subsequent Events
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to September 30, 2018 to the date these financial statements were issued, and has determined
that it does not have any material subsequent events to disclose in these financial statements.