10-Q 1 myhi0205form10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

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

 

For the quarterly period ended December 31, 2017

 

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

 

MOUNTAIN HIGH ACQUISITIONS CORP.

 

(Exact name of registrant as specified in its charter)

 

     
Colorado 333-175825 27-3515499
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation)   Identification Number)

 

 

 

6501 E. Greenway Pkwy., Suite 103-412

Scottsdale, AZ 85254

 

 

 

(Address of principal executive offices)

 

(303) 358-3840
(Registrant’s Telephone Number)

 

Indicate by check mark whether the issuer (1) 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 ☑    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑    No ☐

 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐ Accelerated filer  ☐
   
Non-accelerated filer  ☐ (Do not check if a smaller reporting company) Smaller reporting company  ☑

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☑

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)

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. ☐

 

As of February 7, 2018, there were 92,972,935 shares of the registrant’s $0.0001 par value common stock issued and outstanding. 

   

 

MOUNTAIN HIGH ACQUISITIONS CORP.

QUARTERLY REPORT

PERIOD ENDED DECEMBER 31, 2017

 

TABLE OF CONTENTS

 

      Page No.
    PART I - FINANCIAL INFORMATION  
Item 1.   Financial Statements 3
       
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations 12
       
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 14
       
Item 4T.   Controls and Procedures 14
       
    PART II - OTHER INFORMATION  
       
Item 1.   Legal Proceedings 15
     
Item1A.   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 15
       
Item 5.   Other Information 15
       
Item 6.   Exhibits 15
       
    Signatures 16

 

Special Note Regarding Forward-Looking Statements

 

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Mountain High Acquisitions Corp. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "MYHI" refers to Mountain High Acquisitions Corp.

 

 

 

 

PART I - FINANCIAL INFORMATION

        

ITEM 1.CONSOLIDATED FINANCIAL STATEMENTS

 

 

INDEX  F-1
Consolidated Balance Sheets as of December 31, 2017 (Unaudited) and March 31, 2017  

F-2

Consolidated Statement of Operations for the Three Months Ended December 31, 2017 and December 31, 2016 and the Nine Months ended December 31, 2017 and December 31, 2016 (Unaudited)  F-3
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2017 and December 31, 2016 (Unaudited)  F-4
Notes to the Consolidated Financial Statements (Unaudited)  F-5

 

 

 F-1 

 

 

MOUNTAIN HIGH ACQUISITIONS CORP.
CONSOLIDATED BALANCE SHEETS
 
   Unaudited   Audited 
   December 31,   March 31, 
   2017   2017 
           
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $5,289   $10,399 
Accounts receivable   90,000    —   
Other receivables   22,294    —   
TOTAL CURRENT ASSETS   117,583    10,399 
FIXED ASSETS  (NET)   180,000    —   
TOTAL ASSETS  $297,583   $10,399 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
CURRENT LIABILITIES          
Accounts payable  $11,238   $23,378 
Accrued liabilities-other   12,500    12,500 
Accrued officer fees   115,000    80,000 
Convertible notes payable, net Beneficial Conversion Feature fully recognized of $550,574   489,475    161,279 
Advances from Related Parties   138,945    138,945 
TOTAL CURRENT LIABILITIES   767,158    416,102 
           
COMMITMENTS AND CONTINGENCIES   —      —   
           
STOCKHOLDERS' EQUITY (DEFICIT):          
Preferred stock, $0.0001 par value; 250,000,000 shares authorized, 100,000 and nil shares issued and outstanding as of December 31, 2017 and March 31, 2017 respectively   10    —   
Common stock, $0.0001 par value; 500,000,000 shares authorized, 83,575,227 and 72,691,389 shares issued and outstanding as of December 31, 2017 and March 31, 2017 respectively   8,358    7,269 
Additional paid in capital   8,779,969    5,925,827 
Accumulated (deficit)   (9,257,912)   (6,338,799)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)   (469,575)   (405,703)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $297,583   $10,399 
           
           
The accompanying notes are an integral part of these consolidated financial statements

 

 F-2 

 

 

MOUNTAIN HIGH ACQUISITIONS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
       
  

Three months ended

December 31,

 

Nine months ended

December 31,

   2017  2016  2017  2016
             
Revenue  $60,000   $641   $90,000   $16,374 
Cost of revenue   —      303    —      4,135 
Gross profit   60,000    338    90,000    12,239 
                     
Depreciation   10,000    —      20,000    —   
Impairment   —      55,161    —      55,161 
Director expense   —      162,000    —      162,000 
Officer fees   45,000    45,000    135,000    120,000 
Warrant expense   —      —      115,100    —   
Selling, general and administrative expenses   57,408    140,935    427,608    255,361 
    112,408    403,096    697,708    592,522 
(Loss) from operations   (52,408)   (402,758)   (607,708)   (580,283)
                     
Interest Expense resulting from Beneficial Conversion Feature   —      (205,923)   (136,500)   (285,765)
Forbearance expense   —      —      (27,250)   —   
Original issue discount   —      —      (34,000)   —   
Loss on valuation of preferred stock   —      —      (2,084,300)   —   
Interest Expense   (13,789)   (11,908)   (29,356)   (24,101)
                     
Net income (loss)  $(66,197)  $(620,589)  $(2,919,114)  $(890,149)
                     
Net Income (loss) per share-basic                    
Continuing operations   (0.00)   (0.01)   (0.04)   (0.02)
                     
Net Income (loss) per share-diluted                    
Continuing operations   (0.00)   (0.01)   (0.04)   (0.02)
                     
Weighted average shares outstanding - basic and diluted   80,586,607    53,668,922    76,569,111    45,042,297 
                     
The accompanying notes are an integral part of these consolidated financial statements

 

 F-3 

 

 

MOUNTAIN HIGH ACQUISITIONS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
       
   Nine Months Ended
   December 31,
   2017  2016
       
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (loss)  $(2,919,114)  $(890,149)
Adjustment to reconcile net loss to net          
Cash used in operating activities:          
Changes in:          
Beneficial Conversion Feature on Note payable   136,500    285,765 
Inventory impairment   —      55,161 
Advances to affiliate   —      2,500 
Depreciation and amortization   20,000    —   
Accounts payable   (12,140)   6,729 
Warrants issued   115,100    —   
Director shares   —      162,000 
Increase in Prepaid   —      (40,000)
Increase in receivables   (112,294)   —   
Fixed Assets   (200,000)   —   
Loss on valuation Preferred Stock   2,084,300    —   
Forbearance   27,250    —   
Original issue discount   34,000    —   
Current accrued liabilities   35,000    74,425 
Net cash provided (used) by operating activities   (791,398)   (343,569)
           
CASH FLOWS FROM INVESTING ACTIVITIES   —      —   
    —      —   
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from shares for services   308,433    393,921 
Note conversions   (210,909)   (209,530)
Proceeds from borrowings   688,764    130,164 
Net cash provided by financing activities   786,288    314,555 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (5,110)    (29,014)
           
CASH AND CASH EQUIVALENTS          
Beginning of the period   10,399    34,988 
End of the period  $5,289    5,974 
           
Supplemental disclosures of cash flow information          
Taxes paid  $—     $—   
Interest paid  $—     $—   
           
The accompanying notes are an integral part of these consolidated financial statements

 

 F-4 

 

Note 1 - Organization and Basis of Presentation

 

Organization and Line of Business

 

On May 22, 2016 the Company completed the acquisition of Greenlife Botanix ("Greenlife") as detailed in the First Amendment to the Shareholder Agreement dated February 8, 2016. The Company issued 10,000,000 restricted shares of its common stock to the shareholders of Greenlife in exchange for their 100% interest in Greenlife. The shares were valued at the market value on the date of issuance, $0.23, for a total consideration of $2,300,000. The amount paid for Greenlife was recorded as Goodwill due to the start up nature of Greenlife and the minimal net assets of Greenlife at the time of acquisition. Subsequent to the purchase of Greenlife the Company executed a rescission agreement with Freedom Seed and Feed, "FSF", which prevented Greenlife from becoming a fully integrated cosmetic company. Due to the rescission of FSF and the remarketing of the Greenlife product line the Company evaluated the book value of the asset and elected to impair the goodwill value of Greenlife and expensed the $2,300,000 book value in the year ended March 31, 2017. Greenlife started operations on September 18, 2014. In May 2017, the Company formed MYHI-AZ to acquire equipment to service the growing cannabis industry. In June 2017 the Company entered into a consulting agreement with D9 Manufacturing, "D9", to provide D9 customers with infrastructure equipment. Also in June 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 are 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. A new crop is being planted in January 2018 with an anticipated harvest in May 2018. Due to continued operations with D9 and potential future opportunities with D9, the Company believes the current and future receivable amounts will be collected in full.

 

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 $2,919,114 and used cash for operations of $791,398 for the nine months ended December 31, 2017 and has an accumulated deficit of $9,257,912 and a working capital deficit of $649,575 as of December 31, 2017. 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 subsidiary GreenLife Botanix 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.

 

 F-5 

 

Revenue Recognition

 

In accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition, the Company will recognize revenue when it is realized or realizable and earned. The Company must meet all of the following four criteria under SAB 104 to recognize revenue:

 

  • Persuasive evidence of an arrangement exists
  • Delivery has occurred
  • The sales price is fixed or determinable
  • Collection is reasonably assured

Revenue for FY 2018 represents lease revenue for the grow containers pursuant to the Company's lease with D9.

 

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 and 2017.

 

The Company has no tax positions at December 31, 2017 or March 31, 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.

 

 F-6 

 

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 – Advances from Related Parties

 

At December 31, 2017 and March 31, 2017, $138,945 due to Brent McMahon, former President of GreenLife Botanix, was reclassified from Current Liabilities to Advances from Related Parties. Mr. McMahon is considered a related party due to his common stock position at March 31, 2017, however his ownership position as of December 31, 2017 is undeterminable.

 

Note 4 – 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.

 

During the year ended March 31, 2017 the Company issued 503,334 restricted shares through a private placement at $0.15 per share.

 

On May 22, 2016, The Company issued 10,000,000 restricted shares to the shareholders of Greenlife Botanix pursuant to closing the Share Exchange Agreement dated February 8, 2016. The shares were valued at the fair market trading value, $0.23, on the closing date.

 

The Company issued 353,600 restricted shares to a vendor in lieu of payment of $35,360 that was owed to the vendor at March 31, 2016. The shares were recorded at the fair market value of $0.25 per share or $88,400. The difference in value, $53,040, was written off as a loss on extinguishment of debt in the year ended March 31, 2017.

 

Pursuant to agreements with potential investors, on May 12, 2015 Alan Smith, CEO and a Director, retired 2,000,000 shares he received from the reverse merger referenced above. The share retirement was valued at par $0.0001 per share.

 

On November 1, 2016, the Board of Directors reviewed the share position of the officers and Directors of the Company and granted Richard Stifel, CFO and a Director, 2,500,000 restricted shares of MYHI stock at $.0001 per share. The value of the shares was $164,500 and the Company recorded an expense of $162,000 for shares in lieu of compensation in year ended March 31, 2017.

 

On February 23, 2017, the Company issued 3,000,000 shares of restricted common stock valued at $71,700, the fair value of the stock, pursuant to a consulting contract dated October 11, 2016 with Clearview Consulting for services rendered.

 

During the year ended March 31, 2017, the Company converted $506,587287 of Convertible Notes Payable into 33,772,455 shares of restricted common stock at $0.015 per share per the conversion agreements. Included in this conversion were $192,667 of Convertible Notes Payable for notes held by the Officers and Directors of the Company. which were converted into 12,844,440 shares of restricted common stock, 4,888,958 shares to Richard G. Stifel, CFO and Director and 7,955,482 shares to Alan Smith, CEO and Director.

 

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 nine months ended December 31, 2017 the Company converted $210,910 of convertible notes payable into 8,553,838 shares of free trading common stock of the Company.

 

During the nine months ended December 31, 2017 the Company issued 2,430,000 shares of restricted Common Stock, pursuant to consulting agreements valued at $308,432.

 

 F-7 

 

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, for $346,000. Pursuant to ASC 470-20-25-2 the company fair valued the warrants at $115,100 to be debited to debt discount and amortized over the term of the note. 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.

 

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, December 31, 2017    1,358,995   $.1273   $.1273 
                  
 Exercisable, December 31, 2017    1,358,995   $.1273   $.1273 

 

 

 

Range of Exercise Prices Number Outstanding 12/31/2017 Weighted Average Remaining Contractual Life   Weighted Average Exercise Price
$0.1273 1,358,995 4.68 years $ 0.1273

 

 F-8 

 

Note 5 – 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 $4,500,931 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.

 

Income tax expense (benefit) consists of the following for the nine months ended December 31, 2017: 

    
Current taxes  $ —    
Deferred taxes   227,688 
Less: valuation allowance   (227,688)
Net income tax provision  $—   

 

The Company’s effective tax rate differs from the high statutory rate for the nine months ended December 31, 2017, due to the following (expressed as a percentage of pre-tax income):

    
Federal taxes at statutory rate  $34.0%
State taxes, net of federal tax benefit   5.0%
Valuation allowance   (39.0)%
Effective income tax rate  $0.0%

As of December 31, 2017, the components of these temporary differences and the deferred tax asset were as follows: 

    
Deferred Tax assets:   
     Net operating loss carryforward  $1,038,892 
     Less: valuation allowance   (1,038,892)
Net deferred tax assets  $—   

 

Note 6 - Notes Payable

 

At December 31, 2017 the Company had outstanding convertible notes payable to third parties in the amount of $489,475. 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 $136,500 and $285,765 for the nine months ended December 31, 2017 and 2016 respectively. The following details outstanding convertible notes as of December 31, 2017:

 

Note Holder   Amount   Conversion Terms
Andrew Cervasio         10,476.74   Lesser of $0.03 or 80% lowest closing bid 15 days prior to conversion
Conner Preston         10,476.74   Lesser of $0.03 or 80% lowest closing bid 15 days prior to conversion
Laurence Gershman         10,476.74   Lesser of $0.03 or 80% lowest closing bid 15 days prior to conversion
St. George Financial       391,709.78   180 days from closing at lower of 65% of avg. 2 lowest closing bid 15 days prior to conversion or $0.15
Power Up         66,335.24   180 days from closing at lowest closing bid 15 days prior to conversion
        489,475.24    

 

During the nine months ended December 31, 2017, the Company borrowed $63,000 from Power Up Lending Group, which caused an event of default on the convertible notes due to St. George Investments, "St. George". The Company cured the event of default by executing a Forbearance Agreement with St. George in which the Company agreed to increase its obligation to St. George by $27,500, which was recorded as Forbearance Expense in the current period and to not pursue additional funding without prior approval from St. George. St. George agreed to not accelerate the due date of the note or to increase the interest rate of the note as a result of executing the Forbearance Agreement.

 

 F-9 

 

Note 7 - Related Party Transactions

 

On April 1, 2016, the Company executed consulting agreements with Alan Smith, CEO, and Richard Stifel, CFO for administrative services for the Company. For the three months ended December 31, 2016 Mr. Smith was paid $7,500 and Mr. Stifel was paid $12,500. For the 9 months ended December 31, 2016 Mr. Smith was paid $15,000 and Mr. Stifel was paid $20,000. For the three months ended December 31, 2016 accruals for Mr. Smith and Mr. Stifel were $22,500 each. For the 9 months ended December 31, 2016 accruals for Mr. Smith and Mr. Stifel were $60,000 each.

 

Effective April 1, 2017, Mr. Smith and Mr. 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 the companies. Evolution and RGS were each paid $12,500 and $50,000 for the three months and nine months ended 12/31/2017 respectively. For the three months ended December 31, 2017 accruals for Evolution and RGS were $22,500 each. For the 9 months ended December 31, 2017 accruals for Evolution and RGS were $67,500 each.

 

Note 8 – Commitments and Contingencies

 

None

 

Note 9 – Subsequent Events

 

On January 23, 2018, the Company executed a convertible promissory note to St. George Investments LLC, "St. George" for $335,000 under similar terms to the previous convertible note with St. George.

 

 F-10 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

BUSINESS OPERATIONS

 

On May 30, 2017, the Company entered into an agreement with D9 Manufacturing Inc. to assist the Company in the development of turnkey infrastructure assets for the cannabis market. Subsequent to that agreement, the Company, through its wholly owned subsidiary MYHI-AZ, entered into a purchase agreement and lease agreement with D9 Manufacturing Inc. for 2 intermodal grow containers, "grow containers". 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 with the delivery of the 2 containers to D9. 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 are 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. A new crop is being planted in January 2018 with an anticipated harvest in May 2018. Due to continued operations with D9 and potential future opportunities with D9, the Company believes the current and future receivable amounts will be collected in full.

 

RESULTS OF OPERATIONS

 

Working Capital

 

  

As of

December 31, 2017

Total Current Assets  $117,583 
Total Current Liabilities   (767,158)
Working Capital (Deficit)  $(649,575)

 

Cash Flows

  

Nine months Ended

December 31, 2017

Cash Flows from (used in) Operating Activities  $(791,398)
Cash Flows from (used in) Investing Activities   —   
Cash Flows from (used in) Financing Activities   786,288 
Net Increase (decrease) in Cash during period  $(5,110)

 

Operating Revenues

 

Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016

 

During the three months ended December 30, 2017, the Company recorded revenues of $60,000 compared to $641 revenue for the three months ended December 31, 2016. The sales in the three months ended December 31, 2017 were for lease revenue and the sales for the three months ended December 31, 2016 were for cosmetics. The lease revenue is pursuant to a lease agreement for grow containers and is due and payable when the harvest is sold. The cosmetic sales were sold on net 30 day terms or cash. Cost of Goods Sold are at the lower of cost or market.

 

Nine Months Ended December 31, 2017 Compared to Nine Months Ended December 31, 2016

 

During the nine months ending September 30, 2017, the Company recorded sales of $90,000 compared to $16,374 revenue for the nine months ended December 31, 2016. The sales for the nine months ended December 31, 2017 were for lease revenue for grow containers and the sales for the nine months ended December 31, 2016 were for cosmetics. The lease revenue is pursuant to a lease agreement and are due and payable when the harvest is sold. The cosmetic sales were sold on net 30 day terms or cash. Cost of Goods Sold are at the lower of cost or market.

 

 12 

 

Operating Expenses and Net Loss

 

Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016

 

The net loss for the three months ended December 31, 2017 was $66,197, compared to a net loss of $620,589 for the three months ended December 31, 2016.

 

The net loss for the three months ended December 31, 2017 consisted of Depreciation of $10,000, consulting expense of $45,472, officer fees of $45,000 and interest expense of $13,789.

 

The net loss for the three months ended December 31, 2016 consisted of consulting and subcontractor fees of $114,200 ,officer fees of $45,000, a $162,000 Director expense associated with shares issued in lieu of salary, impairment of the inventory of $55,161(see above), professional fees of $5,421, $205,923 for beneficial interest expense on convertible notes payable and interest of $11,908.

 

Nine months Ended December 31, 2017 Compared to Nine months Ended December 31, 2016

 

The net loss for the nine months ended December 31, 2017 was $2,919,114, compared to a loss of $890,149 for the nine months ended December 31, 2016.

 

The net loss for the three months ended December 31, 2017 consisted of Depreciation of $20,000, warrant expense of $115,100, consulting expense of $309,012, officer fees of $135,000, commission related to borrowing of $30,200, professional fees of $57,820, beneficial interest expense of $136,500, loss on preferred stock $2,084,300 forbearance expense of $27,250, interest expense $29,356 and original issue discount of $34.000.

 

The loss for the nine months ended December 31, 2016 consisted of consulting fees of $124,200, officer fees of $120,000, professional fees of $48,142, web site development of $15,000, Director expense in lieu of salary of $162,000, rent of $20,000, beneficial interest on convertible note of $285,765 and interest of $24,101.

 

Liquidity and Capital Resources

 

At December 31, 2017, the Company’s cash balance and total assets were $5,289 and $297,583, respectively.

 

At December 31, 2017, the Company had total liabilities of $767,158, consisting of $11,238 in accounts payable, $489,475 in notes payable, accrued liabilities of $127,50000 and $138,945 in advances from a related party.  

 

As at December 31, 2017, the Company had a working capital deficit of $649,575.    

 

Cashflow used in Operating Activities

 

During the nine month period ended December 31, 2017, the Company used $791,3981 of cash for operating activities compared to cash used for operating activities of $343,569 for the nine months ended December 31, 2016.

 

Cash used for operations for the nine months ended December 31, 2017. consisted of our loss of $2,919,114 offset by $136,500. for beneficial interest on Notes Payable, loss on issuance of Preferred stock of $2,084,300 , warrant expense of $115,100 an increase in Current Liabilities of $22,860 offset by an increase in receivables of $112,294 and an increase in fixed assets of $200,000.

 

The loss for the nine months ended December 31, 2016 consisted of our loss of $890,1499 offset by $285,765,842 for beneficial interest on Notes Payable and an increase in Current Liabilities of $81,154 offset by an increase in prepaids of $40,000.

 

Cashflow used in Investing Activities

 

There were no investing activities for the nine months ended December 31, 2017 or 2016

 

Cashflow from Financing Activities

 

During the nine month period ended December 31, 2017, the Company provided $786,288 of cash provided by financing activities compared to cash provided by financing activities of $314,555 for the nine months ended December 31, 2016.

 

During the nine months ended December 31, 2017, the Company received $308,433 from the issue of shares for services and $688,764 from borrowings offset by $210,909 from the conversion of debt to stock .

 

During the nine months ended December 31, 2016, the Company received $393,921 from the issue of shares for services, $130,164 from borrowings offset by $209,530 from the conversion of debt to stock

 

Going Concern

 

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

 

 13 

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

Future Financings

 

We will continue to rely on equity sales of our common shares, issuance of convertible notes and advances from our majority stockholders in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities, issue convertible notes or arrange for debt or other financing to fund our operations and other activities.

 

Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Recently Issued Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Based on an evaluation as of the date of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (COSO). Our management has concluded that, as of December 31, 2017, our internal control over financial reporting is effective based on these criteria.

 

Changes in Internal Control and Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2017, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

 

 14 

 

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Quarterly Issuances:

 

None

 

Subsequent Issuances:

 

None

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

Exhibit

Number

Description of Exhibit Filing
4.01 St. George Investments Secured Convertible Promissory Note Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
4.02 St George Investments Warrant to Purchase Shares of Common Stock Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
4.03 St George Investments Forbearance Agreement Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
4.04 Power Up Lending Group Convertible Promissory Note  One Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
4.05 Power Up Lending Group Convertible Promissory Note  Two Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
31.01 Certification of Principal Executive Officer Pursuant to Rule 13a-14 Filed herewith.
31.02 Certification of Principal Financial Officer Pursuant to Rule 13a-14 Filed herewith.
32.01 CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act Filed herewith
10.01 Equipment Lease D9 and MYHI-AZ Filed with SEC on November 14, 2017 with Company Form 10Q. Incorporated by reference
101.INS* XBRL Instance Document Filed herewith.
101.SCH* XBRL Taxonomy Extension Schema Document Filed herewith.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith.
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document Filed herewith.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document Filed herewith.

 

(i)*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 15 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

MOUNTAIN HIGH ACQUISITIONS CORP.

 

 

Dated: February 7, 2018 /s/ Alan Smith                
  By: Alan Smith
  Its: President, CEO, Treasurer and Director

 

 

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:

 

 

 

Dated: February 7, 2018 /s/ Alan Smith                
  Alan Smith
  Its: President, CEO, Treasurer and Director

 

Dated: February 7, 2018 /s/ Richard G. Stifel                
  Richard G. Stifel
  Its: President, CEO, Treasurer and Director

 

 

16