HERO TECHNOLOGIES INC. Overview
Our flagship project, Blackbox has applied to the state of
Our flagship project, Blackbox has applied to the state of
· Blackbox is in the process of pursuing a Class C license, which would
permit them to cultivate up to 2,000 marijuana plants for adult use and
1,500 plants for medicinal use.
· To date, Blackbox has spent approximately $190,577 in pursuit of a
marijuana license.
· Per the MRA, Blackbox is required to pay an initial fee of $40,000 for
each license.
· Blackbox is required to pay a renewal fee for every year that they wish to
retain their license. The fee for renewing a marijuana license can range
from $30,000 to $50,000 , depending on the total weight of the marijuana
plants that were cultivated for the preceding year.
· These licenses will allow Blackbox to cultivate cannabis, within the state
of Michigan , for adult use and medicinal use.
· Blackbox has already completed Step 1 in the application process. However,
before Blackbox can submit an application for Step 2, Blackbox is required
to complete construction of its greenhouse facilities.
· Once the facilities are complete, Blackbox may proceed with a Step 2
application, which entails having the newly constructed facility inspected
by the Bureau of Fire Services within 60 days after the Step 2 application
is submitted.
· Failure to pass an inspection by the BFS within 60 days may result in the
denial of the license.
· Blackbox is also required, by the MRA, to disclose the sources and total
amount of capitalization that is required to operate and maintain a
proposed marijuana facility. For a Class C license, Blackbox is required
to show that they have $500,000 available to operate and maintain the
facility.
· Completing the Step 2 process will allow the company to proceed with the
cultivation of cannabis in Michigan .
Once Blackbox receives a Class C marijuana license for adult use, they will be subject to various provisions and obligations, including the following:
· Under rule 420.102(1), one who holds a Class C marijuana license for adult
use is permitted to grow 2,000 marijuana plants
· According to rule 420.102(4) of the MRA, A marijuana grower license
authorizes a marijuana grower to transfer marijuana without using a
marijuana secure transporter to a marijuana processor or marijuana
retailer if both of the following are met:
o (a) The marijuana processor or marijuana retailer occupies the same
location as the marijuana grower and the marijuana is transferred using
only private real property without accessing public roadways.
o (b) The marijuana grower enters each transfer into the statewide
monitoring system.
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· Pursuant to rule 420.102(5), A marijuana grower license authorizes sale of
marijuana, other than seeds, seedlings, tissue cultures, immature plants,
and cuttings, to a marijuana processor or marijuana retailer.
· Under rule 420.102(7), A marijuana grower must enter all transactions,
current inventory, and other information into the statewide monitoring
system, known as METRC, as required in these rules. Under the METRC
system:
· a serialized tag must be attached to every plant,
· and labels must be attached to wholesale packages
· According to rule 420.102(8), A marijuana grower license does not
authorize the marijuana grower to operate in an area unless the area is
zoned for industrial or agricultural use. At present, the Company is in
compliance with this rule, as we intend to operate in an area that has
been zoned for industrial and agricultural use.
· Under 420.102(9), A marijuana grower may accept the transfer of marijuana
seeds, tissue cultures, and clones that do not meet the definition of
marijuana plant in these rules at any time from another grower licensed
under the acts, these rules, or both. Marijuana.
· Per rule 420.102(11), A marijuana grower licensee is required to comply
with the requirements of the Michigan regulation and taxation of marijuana
act and these rules.
With regard to a Class C marijuana license for medicinal use, the MRA imposes very similar provisions and obligations to those state above. According to rule R 420.108 of the MRA, one who possess a Class C marijuana license for medical use is subject to the following obligations:
· Under rule 420.108(1), one who holds a Class C marijuana license for
medicinal use is only permitted to grow marijuana 1,500 marijuana plants,
as opposed to the 2,000 plants authorized for those who obtain an
adult-use license
· Similar to the rule governing an adult-use license, marijuana under rule
420.108(3), a medicinal-use license authorizes a grower to transfer
marijuana without using a secure transporter to a processor or
provisioning center if both of the following are met:
o (a) The processor or provisioning center occupies the same location as
the grower and the marijuana is transferred using only private real
property without accessing public roadways.
o (b) The grower enters each transfer into the statewide monitoring
system.
· According to rule 420.108(4), a grower license authorizes sale of
marijuana, other than seeds, seedlings, tissue cultures, and cuttings, to
a processor or a provisioning center.
· To be eligible for a grower license, the applicant and each investor in
the grower must not have an interest in a secure transporter or safety
compliance facility.
· Under rule 420.108(7), a medicinal-use license, like an adult-use license,
requires a grower to enter all transactions, current inventory, and other
information into the statewide monitoring system, known as METRC
· Similar to the rule for an adult-use license, under rule 420.108(8), a
medicinal-use license does not authorize the grower to operate in an area
unless the area is zoned for industrial or agricultural use. As mentioned,
the Company is in compliance with this rule, as we intend to operate in an
area that has been zoned for industrial and agricultural use.
Our goal is to become a low-cost national or internationally branded cannabis
company. Through cost measurement methods unused elsewhere by the industry, we
will be able to measure costs of production by pound. With this information, we
will target production costs of
However, there are numerous other developments that will need to occur in order to allow us to implement the final aspects of our business plan and there are no assurances that any of these developments will occur, or if they do occur, that we will be successful in fully implementing our plan.
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Since inception of
· We have incurred recurring losses, the majority of which is attributable
to minimal revenue, compensation expenses, consulting expenses, loss on
the sale of a subsidiary, and losses on share conversion.
· We have funded our operations primarily through issuance of shares for
services and proceeds from sale of stock.
· Our net loss was $ 3,195,507 for the nine months ended September 30, 2021 ,
and $ 450,394 for the nine months ended September 30, 2022 .
· As of September 30, 2022 , we had an accumulated deficit of $ 39,291,611 .
· Our primary use of cash is to fund operating expenses, which consist
primarily of compensation expenses, consulting expenses, and general and
administrative expenditures.
As of
Material changes in our Statement of Operations for the periods shown below compared to the prior periods are discussed below:
Nine months ended
Increase (I) or
Item Decrease (D) Reason
Consulting Expense D Decreased activity in cannabis licensing
Impairment of - No change
Intangibles
Compensation Expense D Decreased due to a decline in the issuance
of stock-based compensation
Office, Travel and D Decreased activity due to a decline in
General travel
Professional Fees D Decreased activity due to a decline in
cannabis licensing
Factors that will most significantly affect future operating results will be:
· Funding for construction of greenhouses inMichigan under Blackbox · Timing related to construction and actual production of cannabis · Wholesale cannabis prices in the state ofMichigan
Other than the foregoing we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on our revenues or expenses.
Results of Operations Comparison of Results of Operations for the Nine Months EndedSeptember 30, 2022 andSeptember 30, 2021 . Nine months ended September 30, September 30, 2022 2021 Sales $ - 1,885 Cost of goods sold - 5,531 Gross profit - (3,646 ) Operating Expenses Consulting 31,073 356,923 Compensation 247,630 309,340 Office, travel, general 64,815 140,546 Professional fees 67,660 156,103 Other 1,487 1,516 Total Operating Expenses (412,665 ) (964,428 ) Other income (expense), net (37,729 ) (2,227,433 ) Net loss$ (450,394 ) $ (3,195,507 ) 20 Table of Contents
Revenue and Cost of Goods Sold
Sales decreased by
Operating Expenses
Operating expenses decreased from
Consulting
Consulting expenses decreased from
Compensation
Compensation expenses decreased from
Professional Fees
Professional fees decreased from
Our Energy and Exploration Legacy and Transition to Cannabis
The Company underwent significant changes from the year 2019 to 2020, which
caused fluctuations in the various operating costs. Before its name change in
2020, the Company was incorporated in the state of
On
Capital Resources and Liquidity
Overview
Since our inception, we have recognized limited revenue from our core cannabis
operations and have incurred operating losses and negative cash flows from our
operations. We have not yet commercialized any product from our planned
aeroponic cultivation of cannabis, and we do not expect to generate revenue
until completion of greenhouse buildouts. Since our inception through
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Our sources and (uses) of cash for the nine months ended September 30, 2022 and
2021 are shown below:
2022 2021
$ $
Cash provided by (used in) operations (145,848 ) (617,197 )
Cash received upon sale of subsidiary - -
Cash provided by (used in) investing activities - 2,409,510
Cash provided by (used in) financing activities 100,000 270,000 Changes in exchange rates
- -
Our material capital commitments for the nine months ending September 30, 2022
are:
Description Amount
(Include all amounts pertaining to Blackbox, cannabis licensing,
pre-acquisition development, land acquisition construction, etc.)
Operating Activities
During the nine months ended
During the nine months ended
Investing Activities
During the nine months ended
Financing Activities
During the nine months ended
We anticipate material capital requirements of
Other than as disclosed above, we do not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity increasing or decreasing in any material way.
Other than as disclosed above, we do not know of any significant changes in our expected sources and uses of cash.
We do not have any commitments or arrangements from any person to provide us with any equity capital.
Our current losses, working capital deficit, and accumulated deficit raise substantial doubt about our ability to continue as a going concern.
Our current operations are being funded by capital that has been raised through the issuance of capital stock. Additionally, we may decide to raise more capital in the future through private offerings, public offerings, and/or debt offerings.
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Funding Requirements
Our primary use of cash is to fund operating expenses, primarily consisting of compensation, consulting and professional fees and general administrative expenses.
Because of the numerous risks and uncertainties associated the cannabis industry, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
· Regulatory and statutory developments regarding the legalization and
commercialization of the marijuana industry in the United States
· Compensation expenses related to our growing platform
· Business development opportunities in the form of targeted acquisitions of
subsidiaries
· Investment activities related to the construction and deployment of
aeroponic growth technology.
We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the cannabis industry and our core businesses, we are unable to estimate the amounts of increased capital outlays and operating expenditures.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings and/or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate the implementation of our business plans.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in
See Note 2 to the
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Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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.
Accounts Receivable
The Company grants credit to customers under credit terms that it believes are customary in the industry and does not require collateral to support customer receivables. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 30-90 days after the issuance of the invoice and typically would be considered past due when the term expires. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.
Inventory
Inventory is valued at the lower of the inventory's cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal.
Revenue Recognition
Net sales include product sales, less excise taxes and customer programs and incentives. The Company recognizes revenue by applying the following steps in accordance with Accounting Standards Codification ("ASC") Topic 606 - Revenue from Contracts with Customers: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company recognizes sales when merchandise is shipped from a warehouse directly to wholesale customers (except in the case of a consignment sale). For consignment sales, the Company recognizes sales upon the consignee's shipment to the customer. Postage and handling charges billed to customers are also recognized as sales upon shipment of the related merchandise. Shipping terms are generally FOB shipping point, and title passes to the customer at the time and place of shipment or purchase by customers at a retail location. For consignment sales, title passes to the consignee concurrent with the consignee's shipment to the customer. The customer has no cancellation privileges after shipment or upon purchase at retail locations, other than customary rights of return. The Company excludes sales tax collected and remitted to various states from sales and cost of sales
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Deferred Income
In some instances, the Company receives payments prior to delivery of its products, whereupon such revenues are deferred until the revenue recognition criteria are met.
Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation - Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service period. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Going Concern
Our net losses through
Recent Accounting Pronouncements
In
Competition
We face extreme competition from both larger, better-financed national brands as well as an ever-increasing number of boutique service providers in the cannabis industry. We currently track sixty-nine (69) such providers in this space and are continually monitoring their progress and presence in the industry while working to continue to demonstrate our unique licensing offering. We also track eighty-eight (88) public companies that are either directly in or loosely involved in the cannabis industry.
Regulatory Considerations
Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws.
As of the date of this Prospectus 36 states and the
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· the distribution of marijuana to minors;
· criminal enterprises, gangs and cartels receiving revenue from the sale of
marijuana;
· the diversion of marijuana from states where it is legal under state law
to other states;
· state-authorized marijuana activity from being used as a cover or pretext
for the trafficking of other illegal drugs or other illegal activity;
· violence and the use of firearms in the cultivation and distribution of
marijuana;
· driving while impaired and the exacerbation of other adverse public health
consequences associated with marijuana use;
· the growing of marijuana on public lands; and
· marijuana possession or use on federal property.
Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations. Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on its operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. These ever-changing regulations could even affect federal tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its business.
Since the use of marijuana is illegal under federal law, most banks will not accept, for deposit, funds from businesses involved with marijuana. Consequently, businesses involved in the marijuana industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for us to operate.
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