Important Information Concerning Forward-Looking Statements
Certain statements in this Management's Discussion and Analysis section or MD&A,
other than purely historical information, including estimates, projections,
statements relating to our business plans, objectives and expected operating
results, and the assumptions upon which those statements are based, are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. These forward-looking statements
generally are identified by the words "may," "will," "could," "would," "should,"
"expect," "intend," "plan," "anticipate," "believe," "approximately,"
"estimate," "predict," "project," "potential," "continue," "ongoing," or the
negative of these terms or other comparable terminology, although the absence of
these words does not necessarily mean that a statement is not forward-looking.
Historical results may not indicate future performance. Our forward-looking
statements reflect our current views about future events, are based on
assumptions and are subject to known and unknown risks and uncertainties that
could cause actual results to differ materially from those contemplated by these
statements. Factors that may cause differences between actual results and those
contemplated by forward-looking statements include, but are not limited to, the
risk factors described in this report. Except to the extent required by law, we
undertake no obligation to update or revise any forward-looking statements,
whether because of new information, future events, a change in events,
conditions, circumstances or assumptions underlying such statements, or
otherwise.
Overview and History
Mountain High Acquisitions Corp. ("Mountain High," "we," "us," or the "Company")
was incorporated in the State of Colorado on September 22, 2010, under the name
Wireless Attachments, Inc.
On March 11, 2014, the Company's name changed from Wireless Attachments, Inc. to
Mountain High Acquisitions Corp. Additionally, the Company's ticker symbol, as
of the open of business on March 12, 2014, changed from "WRSS" to "MYHI."
Prior to January 1, 2020, the Company was in the business of providing
infrastructure assets to licensed producers, processors and retailers engaged in
the cannabis industry. Due to the restrictive regulatory and operational
challenges the Company faced in that business it was decided to pivot away from
cannabis and instead focus on opportunities in the hemp industry.
The Company plans to acquire assets such as equipment, real estate and operating
entities engaged in hemp related activities and to repurpose its existing assets
for use in hemp operations. As discussed below, the Company has acquired a
company (GPS) engaged in the formulation, manufacturing, branding, fulfillment
and distribution of hemp-derived CBD products at its cGMP, FDA-registered
facility in Santa Ana, California. GPS's continually expanding product offering
is sold directly to consumers online as well as through wholesale partners (both
online and brick and mortar stores) under its retail brand name, Zen Drops. The
product offering includes tinctures, salves, gummies, transdermal patches and
oral thin films.
7
In May 2017, the Company formed MYHI-AZ to acquire equipment to service the
growing cannabis industry in Arizona. 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 (the "Containers") from D9 to be used in a grow
operation in Arizona. MYHI-AZ leased the 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 refundable payments by MYHI-AZ for operating supplies and
expenses. 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 and 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.
Effective June 5, 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. 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 remains in full force and effect.
During the period ended June 30, 2019, the Company decided to sell the
containers to generate capital to finance its own change in focus to extraction.
On August 20, 2019, the Company completed the sale of the containers for
proceeds of $100,000 (see note 5 to the financials).
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. As of March 31, 2020, the Lessee was in arrears on the lease.
The Company has been in constant discussion with the Lessee regarding this
delinquency but has been unable to come to a resolution of the matter. The
Company intends to terminate the lease agreement immediately and to relocate the
equipment at the earliest opportunity .
In conjunction with the acquisition of One Lab Co 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. As of March
31, 2019, the intangible asset was fully impaired.
On May 8, 2020, Mountain High Acquisitions Corp, ("MYHI") and Trilogy Capital
LLC ("Trilogy") entered into an Exchange Agreement (the "Exchange Agreement")
pursuant to which MYHI agreed to purchase from Trilogy all of the capital stock
of GPS Associates, Inc., a Delaware corporation ("GPS") in exchange (the
"Exchange") for 215,250,000 restricted shares of MYHI (the "MYHI Shares"). Dr.
Judy Pham is the sole member and manager of Trilogy. Dr Pham is also the sole
member and manager of Alchemy Capital, LLC ("Alchemy") which owns
53,727,273 shares of the MYHI's Common Stock.
Recent Developments
As discussed in our subsequent event footnotes, the company has acquired GPS
Associates, Inc. GPS is a California based company engaged in the formulation,
manufacturing, branding, fulfillment and distribution of hemp-derived CBD
products at its cGMP, FDA-registered facility in Santa Ana, California. GPS's
team of professionals includes physiologists, chemists, herbalists and
botanists committed to combining high-quality organic CBD with synergistic
organic, raw herbs to produce pure, premium consumer products. All products
manufactured by GPS are tested at independent, third party laboratories to prove
potency and purity.
8
RESULTS OF OPERATIONS
The following is a comparison of the Results of Operations for our fiscal years
ended March 31, 2020 and 2019.
Working Capital
The decrease in the working capital deficit can be attributed to the Company
settling $151,445 of accrued liabilities in the current year.
March 31, 2020 March 31, 2019
Current Assets $ 65,227 $ 44,153
Current Liabilities 209,089 271,542
Working Capital (Deficit) $ (143,862 ) $ (227,389 )
Operating Revenues
During the year ended March 31, 2020 the Company had revenue of $0 compared to
$141,120 for the year ended March 31, 2019. The revenue for the year ended March
31, 2019 was for the lease on the 2 grow containers and the extraction
container . As of June 30, 2019, the parties to the D9 lease agreement agreed to
terminate the lease, while the Labco lease was in default, resulting in no
revenues in 2020. Past revenues are no guarantee the Company will generate
future revenues.
Operating Expenses and Net Loss
During the year ended March 31, 2020, the Company was in the business of
providing infrastructure assets to licensed producers, processors and retailers
engaged in the cannabis industry. Due to the restrictive regulatory and
operational challenges the Company faced in that business it was decided to
pivot away from cannabis and instead focus on opportunities in the hemp
industry. The Company plans to acquire assets such as equipment, real estate and
operating entities engaged in hemp related activities and to repurpose its
existing assets for use in hemp operations. For these reasons, there has been a
change in our operating expense, and net loss.
The net loss for the year ended March 31, 2020 was $485,536 compared to a net
loss of $5,434,865 for year ended March 31, 2019 . The primary reason for the
decrease in net loss was in 2019 there was a goodwill write off for $4,605,134
as well as a warrant expense for $597,000 in 2019 which did not appear in
2020.
The net loss for the year ended March 31, 2020 consisted of $100,907 for officer
and director fees, $50,233 for depreciation expense, $69,008 for professional
fees, and $45,412 for selling, general and administrative expense. Furthermore,
the Company recognized interest expense of $146,078, consisting of $12,500
amortized convertible note discounts, $121,053 of derivative liability expense
and $12,527 of regular interest expense, loss on sale of equipment of $39,788 a
$50,000 loss on an asset write-off from the sale of its subsidiary, and other
income of $15,892, of which $9,872 is a gain on derivative liability, and
$6,020 from interest on notes receivable.
The net loss for the year ended March 31, 2019 consisted of a $150,000 for
officer and director fees, $597,000 for warrant expense related to the
settlement of a securities purchase agreement, $58,811 for depreciation expense,
$104,895 for professional fees, and $41,066 for selling, general, and
administrative expense . Furthermore, the Company recognized a Goodwill write
down of $4,605,134 related to the intangible assets such acquired in 2018 from
its purchase of One Labco. Total interest expense of $26,454. The Company also
recognized other income of $7,375 as a result of interest on notes receivable .
9
Liquidity and Capital Resources
At March 31, 2020, the Company's cash balance totaled $5,542 compared to $767 at
March 31, 2019. The increase is primarily due to additional funds being
available at year end.
Other current assets consisted of $7,500 in prepaids compared to $0 at March 31,
2019. The increase is due to the prepayment for consulting and director and
officer fees. Deposits consisted of $5,652 compared to $0 at March 31, 2019. The
increase is related to canceled travel expenses . Notes receivable , consisted
of $46,533 compared to $43,386 at March 31, 2019 . Other assets consisted of
$26,828 in notes receivable non-current potion compared to $73,975 at March 31,
2019. The decreased is due to payments received on this note.
Additionally, during the three month period ended June 30, 2019, the Company
decided to sell the containers to generate capital to finance its own change in
focus to extraction. On August 20, 2019, the Company completed the sale of the
containers for proceeds of $100,000, recognizing a loss of $39,788.
At March 31, 2020, the Company had total current liabilities of $209,089
compared with total liabilities of $271,542 at March 31, 2019. The decrease
was due to the Company converting notes payable during the year and a decrease
in accrued liabilities of $138, 945 resulting from the deconsolidation of its
subsidiaries Greenlife BotaniX. The accrued liabilities were owed to Brent
McMahon, a related party. The gain to the company of the removal of liabilities
in the books has been reflected as an increase in Additional Paid in Capital of
$201,445 as the transaction was with a related party controlled by a stockholder
in the company, resulting in the effective treatment of the gain as a
stockholder contribution.
At March 31, 2020, the Company had a working capital deficit of $143,862
compared to a working capital deficit of $227,389 at March 31, 2019.
Cash Flows
Year ended Year ended
March 31, 2020 March 31, 2019
Cash Flows from (used in) Operating Activities $ (195,225 ) $ 51,784
Cash Flows from (used in) Investing Activities 100,000 (35,000 )
Cash Flows from (used in) Financing Activities 100,000 (125,481 )
Net Increase (decrease) in Cash during period $ 4,775 $ (108,697 )
There are currently no, known trends, or any known demands, commitments, events
or uncertainties that will result in or are likely to result in the Company's
liquidity increasing or decreasing.
We will likely need to raise additional capital to fund the acquisitions on
which we have entered into binding terms sheets. We may explore capital raising
transactions in the form of debt, equity or both. At this time, we are unable to
state how much additional capital we may need. As of the date of this Report, we
have no commitment from any investor or investment-banking firm to provide us
with any funding. Further, no assurance can be given that any future financing
will be available or, if available, that it will be on terms that are
satisfactory to the Company. Even if the Company can obtain additional
financing, it may contain undue restrictions on our operations, in the case of
debt financing or cause substantial dilution for our stockholders, in case of
equity financing. Failure to obtain this additional financing may have a
material negative impact on our ability to generate profits on a regular basis
in the future.
Upon successfully consummating our planned acquisitions and merging those
operations into our own operations, we believe we will generate positive cash
flow from our operations. If we are successful in achieving this objective, we
do not believe we will need to raise additional capital to execute our business
strategy, as we anticipate that the revenue generated from the fully integrated
acquisitions will be sufficient to allow us to implement our current business
plan. However, there can be no assurance that we will be able to successfully
complete any of the contemplated acquisitions. However, if we do not experience
a positive impact on our operations from acquisitions we may consummate or if
unforeseen developments occur that negatively impact our cash flow, we may need
to raise additional capital to execute our business strategy.
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a material impact on the Company's
operations in the future.
10
Cash Flows from Operating Activities
During the year ended March 31, 2020, the Company used $195,225 of cash for
operating activities compared to the cash provided of $51,784 for operating
activities during the year ended March 31, 2019. The decrease in cash used for
operations for the year ended March 31, 2020 was due to the operating loss of
$485,536, depreciation expense of $50,233, amortization of the discount on
convertible debt of $12,500 , loss on sale of equipment of $39,788, forgiveness
of the Greenlife receivable of $50,000, a decrease of accounts payable of
$(17,071), a $44,000 decrease in other receivables, an increase of $5,652 in
deposits for credits on travel expense, a $7,500 increase in prepaid expense,
an increase of $305 in accounts payable, related party, interest expense of
$11,543, accrued interest of $984 and $111,181 of derivative liability.
Cash Flows from Investing Activities
During the year ended March 31, 2020, the Company's cash flow from investing
activities increased due to the receipt of $100,000 from the sale of an asset,
compared to $35,000 used to purchase an asset in the period ended March 31,
2019.
Cash Flows from Financing Activities
During the year ended March 31, 2020, the Company's net cash received from
financing activities was $100,000 from proceeds of borrowing on a convertible
note .
During the year ended March 31, 2019 , the Company's net cash used by financing
activities was $125,481. $117,361 was related to an account receivable converted
to an interest-bearing note receivable. Furthermore, a total of $8,120 was
recorded for shares returned.
Going Concern
We have not attained profitable operations and are dependent upon obtaining
financing to pursue any extensive acquisitions and activities . For these
reasons, as discussed in Note 1 of our notes to the financial statements,
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.
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 $485,536 for the year ended March 31, 2020
and has an accumulated deficit of $15,610,923 and a working capital deficit of
$143,862 as of March 31, 2020. In addition, the Company had $5,542 of cash on
hand at year end as well has sustained recurring operating losses.
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.
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 and debt
financing 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 or
arrange for debt or other financing to fund our operations and other activities.
11
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. A few of these are noted
below, but a complete list appears in our 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.
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.
Under ASC 606, an entity recognizes revenue when its customer obtains control of
promised goods or services, in an amount that reflects the consideration which
the entity expects to receive in exchange for those goods or services. To
determine the appropriate amount of revenue to be recognized for arrangements
determined to be within the scope of ASC 606, the Company performs the following
five steps: (i) identification of the promised goods or services in the
contract; (ii) determination of whether the promised goods or services are
performance obligations including whether they are distinct in the context of
the contract; (iii) measurement of the transaction price, including the
constraint on variable consideration; (iv) allocation of the transaction price
to the performance obligations; and (v) recognition of revenue when (or as) the
Company satisfies each performance obligation. The Company only applies the
five-step model to contracts when it is probable that the entity will collect
consideration it is entitled to in exchange for the goods or services it
transfers to the customer.
Our revenue in 2019 represented 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. D9 is not a related party. For the year ended
March 31, 2020, the Company recorded no revenue.
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.
Long-lived assets, which include property, equipment, goodwill and identifiable
intangible assets, are reviewed for impairment whenever events or changes in
business circumstances indicate impairment may exist. If the Company determines
that the carrying value of a long-lived asset may not be recoverable, a
permanent impairment charge is recorded for the amount by which the carrying
value of the long-lived asset exceeds its estimated fair value. If an initial
assessment indicates it is more likely than not an impairment may exist, it is
evaluated by comparing the unit's estimated fair value to its carrying value.
Fair value is generally estimated using an income approach that discounts
estimated future cash flows using discount rates judged by management to be
commensurate with the applicable risk. Estimates of future sales, operating
results, cash flows and discount rates are subject to changes in the economic
environment, including such factors as the general level of market interest
rates, expected equity market returns and the volatility of markets served,
particularly when recessionary economic circumstances continue for an extended
period of time. Management believes the estimates of future cash flows and fair
values are reasonable; however, changes in estimates due to variance from
assumptions could materially affect the evaluations.
Fixed assets as of March 31, 2020 and 2019, respectively, have not been
impaired.
12
Derivatives
Derivatives are recognized initially at fair value. Subsequent to initial
recognition, derivatives are measured at fair value, and changes are therein
generally recognized in profit or loss.
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
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.
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MOUNTAIN HIGH ACQUISITIONS CORP. 
