MYHI Mountain High Acquisitions Corporation (CE)

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:

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 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:

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:

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):

As of March 31, 2019, the components of these temporary differences and the deferred tax asset were as follows: 

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 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.