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 September 30, 2016
☐ 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) | |
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6501 E. Greenway Pkwy., Suite 103-412 Scottsdale, AZ 85254 |
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(Address of principal executive offices)
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| (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 ☑
As of November 14, 2016, there were 53,801,129 shares of the registrant’s $0.0001 par value common stock issued and outstanding.
MOUNTAIN HIGH ACQUISITIONS CORP.
QUARTERLY REPORT
PERIOD ENDED SEPTEMBER 30, 2016
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 | 10 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13 | |
| Item 4T. | Controls and Procedures | 13 | |
| PART II - OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 14 | |
| Item1A. | Risk Factors | 14 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 | |
| Item 3. | Defaults Upon Senior Securities | 14 | |
| Item 4. | Mine Safety Disclosures | 14 | |
| Item 5. | Other Information | 14 | |
| Item 6. | Exhibits | 14 | |
| Signatures | 15 |
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 September 30, 2016 (Unaudited) and March 31, 2016 | F-2 | |||
| Consolidated Statement of Operations for the Three Months Ended September 30, 2016 and September 30, 2015 and the Six Months ended September 30, 2016 and September 30, 2015 (Unaudited) | F-3 | |||
| Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2016 and September 30, 2015 (Unaudited) | F-4 | |||
| Notes to the Consolidated Financial Statements (Unaudited) | F-5 |
| F-1 |
| MOUNTAIN HIGH ACQUISITIONS CORP. | ||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||
| Audited | ||||||||||||
| September 30, | March 31, | |||||||||||
| 2016 | 2016 | |||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | $ | 3,842 | $ | 34,988 | ||||||||
| Prepaid expenses | 40,000 | — | ||||||||||
| Inventory | 55,464 | 59,296 | ||||||||||
| TOTAL CURRENT ASSETS | 99,306 | 94,284 | ||||||||||
| TOTAL ASSETS | $ | 99,306 | $ | 94,284 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | $ | 103,115 | $ | 91,344 | ||||||||
| Accrued payroll | 37,500 | 37,500 | ||||||||||
| Notes payable, net Beneficial Conversion Feature fully recognized of $253,640 | 416,351 | 396,022 | ||||||||||
| Advances from Related Parties | 16,100 | 16,100 | ||||||||||
| TOTAL CURRENT LIABILITIES | 573,066 | 540,966 | ||||||||||
| COMMITMENTS AND CONTINGENCIES | — | — | ||||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||||||
| Preferred stock, $0.0001 par value; 250,000,000 shares authorized, nil shares issued and outstanding | — | — | ||||||||||
| Common stock, $0.0001 par value; 250,000,000 shares authorized, 44,260,944 and 33,418,934 shares issued and outstanding respectively | 4,426 | 3,342 | ||||||||||
| Additional paid in capital | 5,188,078 | 4,946,691 | ||||||||||
| Accumulated (deficit) | (5,666,264 | ) | (5,396,715 | ) | ||||||||
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (473,760 | ) | (446,682 | ) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 99,306 | $ | 94,284 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements | ||||||||||||
| F-2 |
| MOUNTAIN HIGH ACQUISITIONS CORP. | ||||||||||||||||
| CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||||||
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 | ||||||||||||||||
| AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue | $ | 11,460 | $ | 3,437 | $ | 15,732 | $ | 19,273 | ||||||||
| Cost of revenue | 2,336 | — | 3,831 | 38 | ||||||||||||
| Gross profit | 9,124 | 3,437 | 11,901 | 19,235 | ||||||||||||
| Impairment | — | — | — | 2,300,000 | ||||||||||||
| Selling, general and administrative expenses | 83,743 | 75,152 | 189,416 | 274,508 | ||||||||||||
| 83,743 | 75,152 | 189,416 | 2,574,508 | |||||||||||||
| (Loss) from operations | (74,619 | ) | (71,715 | ) | (177,515 | ) | (2,555,273 | ) | ||||||||
| Interest Expense resulting from Beneficial Conversion Feature | (23,292 | ) | — | (79,842 | ) | — | ||||||||||
| Other income (expense) | (8,157 | ) | (1,826 | ) | (12,192 | ) | (122,734 | ) | ||||||||
| Net income (loss) | $ | (106,068 | ) | $ | (73,541 | ) | $ | (269,549 | ) | $ | (2,678,007 | ) | ||||
| Weighted average shares outstanding - basic and diluted | 43,898,029 | 28,079,857 | 40,433,391 | 28,079,857 | ||||||||||||
| (Loss) per shares - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.10 | ) | ||||
| The accompanying notes are an integral part of these consolidated financial statements | ||||||||||||||||
| F-3 |
| MOUNTAIN HIGH ACQUISITIONS CORP. | ||||||||||||||||||||
| CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||||||||||
| FOR THE SIX MONTHS ENDED | ||||||||||||||||||||
| SEPTEMBER 30, 2016 AND 2015 | ||||||||||||||||||||
| (UNAUDITED) | ||||||||||||||||||||
| September 30, | ||||||||||||||||||||
| 2016 | 2015 | |||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
| Net (loss) | $ | (269,549 | ) | $ | (2,678,007 | ) | ||||||||||||||
| Adjustment to reconcile net loss to net Cash used in operating activities: | ||||||||||||||||||||
| Changes in: | ||||||||||||||||||||
| Impairment goodwill | — | 2,300,000 | ||||||||||||||||||
| Advances to Affiliate | — | 50,000 | ||||||||||||||||||
| Beneficial Conversion Feature on Note payable | 79,842 | — | ||||||||||||||||||
| Accounts payable | 11,771 | 136 | ||||||||||||||||||
| Increase in Prepaid | (40,000 | ) | — | |||||||||||||||||
| Inventory | 3,832 | (19,198 | ) | |||||||||||||||||
| Current liabilities | 36,019 | 252,190 | ||||||||||||||||||
| Net cash used in operating activities | (178,085 | ) | (94,879 | ) | ||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
| Purchase of GreenLife | — | 2,669 | ||||||||||||||||||
| Disposition of Canna-Life | — | 41,984 | ||||||||||||||||||
| Net cash provided (used) by investing activities | — | 44,653 | ||||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||||||
| Proceeds from conversion of debt | 162,629 | 50,500 | ||||||||||||||||||
| Extinguishment of convertible debt | (103,927 | ) | — | |||||||||||||||||
| Proceeds from notes payable | 88,237 | — | ||||||||||||||||||
| Net cash provided by financing activities | 146,939 | 50,500 | ||||||||||||||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (31,146 | ) | 274 | |||||||||||||||||
| CASH AND CASH EQUIVALENTS | ||||||||||||||||||||
| Beginning of the period | 34,988 | 45 | ||||||||||||||||||
| End of the period | $ | 3,842 | 319 | |||||||||||||||||
| 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
Mountain High Acquisitions Corp., formerly known as Wireless Attachments, Inc., (the “Company”) was incorporated under the laws of the State of Colorado on September 22, 2010. The Company was originally incorporated for the purpose of developing solar cloth membranes for outdoor active wear that covert sunlight into electrical power and that can be used for charging and/or operating mobile devices such as the iPod and the iPhone.
The Company is currently in the business of acquiring companies and technologies engaged in the development, production, sales and marketing of CBD related products
On April 30, 2015, the Company entered into a Sale and Purchase Agreement to sell Canna-Life Corporation (the "CL Agreement"), a wholly owned subsidiary, to Evolution Equities Corporation and Alan Smith.("Purchasers") Under the terms of the CL Agreement the Company will sell 8,104,000 (100%) of its shares of Canna-Life and execute a note Payable for $80,000 to Evolutions Equities Corporation in exchange for the extinguishment of $490,416 of debt due to the Purchasers at March 31, 2015 and $1.00 cash.
On May 22, 2015 the Company completed the acquisition of Greenlife Botanix ("Greenlife") as detailed in the First Amendment to the Shareholder Agreement dated February 8, 2015. 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 of were valued at the market value on the date of issuance, $0.23, $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. Due changes in anticipated acquisitions 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 six months ended September 30, 2015.
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 $269,549, has an accumulated deficit of $5,666,264 and a working capital deficit of $473,760 as of September 30, 2016. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management plans to continue to raise capital to fund the Company’s operations and believes that it can continue to raise equity or debt financing to support its operations until the Company is able to generate positive cash flow from operations.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”). The accompanying consolidated financial statements have been presented in United States Dollars ($ 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 in 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
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
| F-5 |
Inventories
Inventories consisting of cosmetic products are stated at the lower of cost or market. Cost is determined using the first-in, first-out method and are adjusted to actual cost quarterly based on a physical count. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
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, and 2015.
The Company has no tax positions at September 30, 2016, or March 31, 2016, 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. There were 604,000 warrants outstanding at September 30, 2016, which were excluded from the diluted loss per share calculation as their inclusion would be anti-dilutive.
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.
| F-6 |
Note 3 – Advances from Stockholder
Alan Smith, the Company’s Chief Executive officer and a director, has advanced money to fund the Company’s operations. The amount due to this stockholder at September 30, 2016 and March 31, 2016 was a 5% convertible note payable of $15,561 and $15,001, respectively. The $16,100 Advances from related parties refers to an unsecured advance by the President of GreenLife Botanix, Brent McMahon. Mr. McMahon is not an officer or Director of the Company. Mr. McMahon is a shareholder of MYHI stock.
Note 4 – Equity
Common Stock
The Company has authorized 250,000,000 shares of common stock with a par value of $0.0001 per share and 250,000,000 shares of preferred stock with a par value of $0.0001 per share.
In connection with a private placement offering, in March 2014 the Company sold 604,000 units, each unit consisting of one share of the Company’s common stock and a warrant to purchase one share of the Company’s common stock. The warrants have an exercise price of $4.75 and expire on March 6, 2017.
During March 2015, the Company sold 420,000 restricted shares of common stock through a private placement at $0.15 per share. These shares were issued on April 14,2015
During the year ended March 31, 2016 the Company issued 336,667 restricted shares through a private placement at $0.15 per share.
On May 22, 2015, the Company issued 10,000,000 restricted shares to the shareholders of Greenlife Botanix pursuant to closing the Share Exchange Agreement dated February 8, 2015. 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, 2015.
Pursuant to agreements with potential investors; 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.
During the six months ended September 30, 2016, the Company converted $162,629 of Notes Payable into 10,842,010 shares of common stock at $0.015 per share per the conversion agreements.
Warrants
The following table summarizes the warrant activity:
| Weighted | ||||||||||||||||||
| Weighted | Average | |||||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||||
| Warrants | Price $ | Life (in years) | Value $ | |||||||||||||||
| Outstanding, March 31, 2015 | 904,000 | $ | 4.50 | |||||||||||||||
| Exercised | — | |||||||||||||||||
| Forfeited/Canceled | (300,000 | ) | ||||||||||||||||
| Outstanding, September 30 2016 | 604,000 | $ | 4.75 | .43 | ||||||||||||||
| Exercisable, September 30, 2016 | 604,000 | $ | 4.75 | .43 | $ | 0.00 | ||||||||||||
The number and weighted average exercise prices of all warrants outstanding as of September 30, 2016, are as follows:
| Warrants Outstanding and Exercisable | ||||||||||||||
| Weighted | Weighted | |||||||||||||
| Average | Average | |||||||||||||
| Exercise | Number | Exercise | Remaining | |||||||||||
| Price $ | of Warrants | Price $ | Life (Years) | |||||||||||
| 4.75 | 604,000 | 4.75 | .43 | |||||||||||
| 604,000 | ||||||||||||||
| F-7 |
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 $3,621,873, 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 the change in control.
Income tax expense (benefit) consists of the following for the six months ended September 30, 2016:
| Current taxes | $ | — | ||
| Deferred taxes | 1,240,766 | |||
| Less: valuation allowance | (1,240,766 | ) | ||
| Net income tax provision | $ | — |
The Company’s effective tax rate differs from the high statutory rate for the period ended September 30, 2016, 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 September 30, 2016, the components of these temporary differences and the deferred tax asset were as follows:
| Deferred Tax assets: | ||||
| Net operating loss carryforward | $ | 2,302,018 | ||
| Less: valuation allowance | (2,302,018 | ) | ||
| Net deferred tax assets | $ | — |
Note 6 – Commitments and Contingencies
None.
Note 7 - Notes Payable
During the Quarter ended September 30, 2016 the Company issued notes payable to private parties and converted some of these Notes Payable in to restricted common stock. Each note had interest rates of 3%-5% and had a conversion provision allowing the holder to convert the note into shares of the Company at a discount. The discount varied from 70% of the trading value at the conversion date to the lower of 80% of the share value on the conversion date or $0.015, 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 resulted in an expense of $73,842 for the six months ended September 30, 2016 and an aggregate expense of $253,640 to date through September 30, 2016. During the three months ended September 30, 2016, the Company converted $35,033 of existing Notes Payable into 2,335,551 of common stock. During the three months ended September 30, 2016, the Company also issued $68,267 of additional convertible Notes Payable.
Note 8 – Subsequent Events
The Company has determined that there are no subsequent events to report pertaining to the six months ended September 30, 2016.
| F-8 |
| 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.
RESULTS OF OPERATIONS
Working Capital
As of September 30, 2016 | ||||
| Total Current Assets | $ | 99,306 | ||
| Total Current Liabilities | 573,066 | |||
| Working Capital (Deficit) | $ | (473,760 | ) | |
Cash Flows
Three months Ended September 30, 2016 | ||||
| Cash Flows from (used in) Operating Activities | $ | (178,085 | ) | |
| Cash Flows from (used in) Investing Activities | 0 | |||
| Cash Flows from (used in) Financing Activities | 146,939 | |||
| Net Increase (decrease) in Cash during period | $ | (31,146 | ) | |
Operating Revenues
During the three months ending September 30, 2016, the Company recorded sales of $11,460 compared to $3,347 for the three months ended September 30, 2015.
Sales for the six months ended September 30, 2016 were $15,732 compared to $19,273 for the six months ended September 30, 2015
The sales were for cosmetics and were sold on net 30 day terms or cash. Cost of Goods Sold are at the lower of cost or market.
Operating Expenses and Net Loss
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
The net loss for the three months ended September 30, 2016 was $106,068, compared to a net loss of $73,541 for the three months ended September 30, 2015.
The net loss for the three months ended September 30, 2016 consisted of consulting fees of $45,000, $7,500 for rent, professional fees of $26,721, $23,292 for beneficial interest expense on convertible notes payable and interest of $8,157.
The loss for the three months ended September 30, 2015 consisted primarily of $30,000 for accrued payroll, $4,313 for legal and accounting expenses and $16,650 for contract labor.
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Six Months Ended September 30, 2016 Compared to Six Months Ended September 30, 2015
The net loss for the six months ended September 30, 2016 was $269,549, compared to a loss of $2,678,007 for the six months ended September 30, 2015.
The loss for the six months ended September 30, 2016 consisted of consulting fees of $85,000, professional fees of $42,721, web site development of $15,000, rent of $15,000, beneficial interest on convertible note of $79,842 and interest of $12,192.
The loss for the six months ended September 30, 2015 consisted of the impairment of Goodwill incurred from the purchase of GreenLife of $2,300,000, $87,500 for accrued payroll related costs, $59,621 for legal and accounting and $43,063 for contract labor. Other Income (Expense) was for a gain on the sale of Canna-Life of $48,473, a loss on the acquisition of GreenLife of $27,029 and loss on the rescission of the Freedom Seed and Feed transaction of $88,145 and a loss on the extinguishment of debt of $53,040 and interest expense on notes payable of $2,992.
Liquidity and Capital Resources
At September 30, 2016, the Company’s cash balance and total assets were $3,842 and $99,306, respectively.
At September 30, 2016, the Company had total liabilities of $573,066, consisting of $103,115 in accounts payable, $416,351 in notes payable, accrued payroll of $37,500 and $16,100 in advances from a related party.
As at September 30, 2016, the Company had a working capital deficit of $473,760.
Cashflow used in Operating Activities
During the six month period ended September 30, 2016, the Company used $178,085 of cash for operating activities compared to cash used for operating activities of $94,879 for the six months ended September 30, 2015.
Cash used for operations for the six months ended September 30, 2016. consisted of our loss of $269,549 offset by a $40,000 increase in prepaid expense and cash provided by non cash expense of $79,842 for beneficial interest and an increase in accrued liabilities of $36,019.
Cash used for operations for the six months ended September 30, 2015. consisted of our loss of $2,678,007 offset by the non cash impairment of $2,300,000 an increase in current liabilities of $252,190 and advances from affiliates of $50,000 and cash used for inventory increase of $19,198.
Cashflow used in Investing Activities
There were no investing activities for the six months ended September 30, 2016
During the six month period ended September 30, 2015, the Company acquired GreenLife Botanix for a net increase of $2,669 relatyed to the GreenLife purchse and sold Canna-Life for a net gain of $41,984.
Cashflow from Financing Activities
During the six months ended September 30, 2016, the Company received $88,237 from the issue of convertible Notes Payable $162,629 from the conversion of debt to stock and a decrease in extinguishment of debt of $103,927, for a net cash increase of $146,939 from financing activities.
During the six months ended September 30, 2015 the Company received cash from financing activities from the private placement of restricted stock in the amount of $50,500.
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.
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.
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Future Financings
We will continue to rely on equity sales of our common shares and advances from our majority stockholder 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.
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.
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| 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
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.
Based on an evaluation as of our most recent fiscal year end 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 September 30, 2016 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.
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 September 30, 2015. Our management has concluded that, as of September 30, 2016, our internal control over financial reporting is effective.
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 September 30, 2016, that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This quarterly 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.
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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 | ||
| 3.01 | Articles of Incorporation | Filed with the SEC on July 27, 2011 as part of our Registration Statement on Form S-1. | ||
| 3.01(a) | Amendment to Articles of Incorporation dated September 22, 2010 | Filed with the SEC on October 7, 2011 as part of our Amended Registration Statement on Form S-1/A. | ||
| 3.01(b) | Amendment to Articles of Incorporation dated March 6, 2014 | Filed with the SEC on March 10, 2014 as part of our Current Report on Form 8-K. | ||
| 3.02 | Bylaws | Filed with the SEC on July 27, 2011 as part of our Registration Statement on Form S-1. | ||
| 10.01 | Share Exchange Agreement by and among the Company, the controlling stockholders of the Company, Canna-Life, and the shareholders of Canna-Life dated March 6, 2014 | Filed with the SEC on March 10, 2014 as part of our Current Report on Form 8-K. | ||
| 10.02 | Addendum to Share Exchange Agreement dated March 18, 2014 | Filed with the SEC on March 20, 2014 as part of our Current Report on Form 8-K. | ||
| 10.03 | Consulting Agreement by and between the Company and Dr. Bob Melamede dated April 3, 2014 | Filed with the SEC on April 15, 2014 as part of our Current Report on Form 8-K. | ||
| 10.04 | Master Property Purchase and Sale Agreement between Canna-Life Corporation and Deep Blue Enterprises, LLC dated April 30, 2014 | Filed with the SEC on May 5, 2014 as part of our Current Report on Form 8-K. | ||
| 16.01 | Letter from Comiskey & Company dated September21, 2013 | Filed with the SEC on September25, 2013, as part of our Current Report on Form 8-K. | ||
| 16.02 | Letter from AJ Robbins, P.C. dated February 3, 2014 | Filed with the SEC on February 4, 2014, as part of our Current Report on Form 8-K. | ||
| 16.03 | Letter from Haynie & Company, P.C. dated October 31, 2014 | Filed with the SEC on October 31, 2014, as part of our Current Report on Form 8-K. | ||
| 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. | ||
| 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.
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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: November 14, 2016 | /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: November 14, 2016 | /s/ Alan Smith |
| Alan Smith | |
| Its: President, CEO, Treasurer and Director | |
| Dated: November 14, 2016 | /s/ Richard G. Stifel |
| Richard G. Stifel | |
| Its: CFO, Secretary and Director |
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