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 March 31, 2023

 

OR

 

☐

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

 

For the transition period from ______ to ______

 

Commission file number: 333-261062

 

HERO TECHNOLOGIES, INC

(Exact name of registrant as specified in its charter)

 

Nevada

 

77-0643398

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

8 The Green Suite 4000, Dover, DE 19901

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code: (302) 538-4165

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has 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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller reporting company

☒

 

 

Emerging Growth Company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒

 

The number of shares of Registrant’s Common Stock, $0.001 par value per share, outstanding as of May 16, 2023 was 464,192,444 shares

 

 

 

 

HERO TECHNOLOGIES, INC

 

INDEX TO FORM 10-Q

 

 

 

 

Page

 

PART I 

 

4

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited):

 

4

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

23

 

Item 4.

Controls and Procedures

 

23

 

 

 

 

 

 

PART II 

 

24

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

24

 

Item 1A.

Risk Factors

 

24

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

Item 3.

Defaults Upon Senior Securities

 

25

 

Item 4.

Mine Safety Disclosures

 

25

 

Item 5.

Other Information

 

25

 

Item 6.

Exhibits

 

26

 

 

 

 

 

 

Signatures

 

27

 

 

 
2

Table of Contents

 

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to “Hero Technologies,” “the Company,” “we,” “us,” and “our” refer to Hero Technologies, Inc. and, where appropriate, its subsidiaries.

 

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2022 under Part I, Item IA, “Risk Factors.”

 

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

 

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

 
3

Table of Contents

  

PART I – Financial Information

 

Item 1 – Financial Statements

 

HERO TECHNOLOGIES, INC. 

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

2023

 

 

December 31,

2022

 

ASSETS

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$19,190

 

 

$34,325

 

Prepaid expenses

 

 

3,282

 

 

 

6,563

 

Total current assets

 

 

22,472

 

 

 

40,888

 

 

 

 

 

 

 

 

 

 

Non-current Assets

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

 

603,833

 

 

 

604,329

 

Total Non-current assets

 

 

603,833

 

 

 

604,329

 

Total Assets

 

$626,305

 

 

$645,217

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$102,905

 

 

$95,540

 

Accounts payable and accrued related party liabilities

 

 

15,000

 

 

 

15,000

 

Loans payable, long term portion - non-related party

 

 

525,000

 

 

 

525,000

 

Loans payable, current portion - related party

 

 

200,000

 

 

 

200,000

 

Total current liabilities

 

 

842,905

 

 

 

835,540

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

842,905

 

 

 

835,540

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Authorized:

 

 

 

 

 

 

 

 

10,000,000 preferred shares, par value $0.001 per share

 

 

 

 

 

 

 

 

950,000,000 common shares, par value $0.001 per share

 

 

 

 

 

 

 

 

Issued and outstanding:

 

 

 

 

 

 

 

 

1,000,000 preferred shares at March 31, 2023 (1,000,000 at 2022)

 

 

1,000

 

 

 

1,000

 

461,192,444 common shares at March 31, 2023 (451,692,444 at 2022)

 

 

461,192

 

 

 

451,692

 

Additional paid-in capital

 

 

39,012,032

 

 

 

38,846,282

 

Stock Receivable

 

 

(15,000)

 

 

-

 

Stock Payable

 

 

27,970

 

 

 

27,970

 

Non-controlling Interest

 

 

(120,781)

 

 

(119,574)

Accumulated deficit

 

 

(39,583,013)

 

 

(39,397,693)

Total stockholders’ equity (deficit)

 

 

(216,600)

 

 

(190,323)

Total Liabilities and Stockholders’ Equity (Deficit)

 

$626,305

 

 

$645,217

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
4

Table of Contents

  

HERO TECHNOLOGIES, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 

(Unaudited) 

 

 

 

Three months ended

 

 

 

March 31,

2023

 

 

March 31,

2022

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

Consulting

 

 

6,695

 

 

 

7,646

 

Compensation expense

 

 

152,750

 

 

 

153,800

 

Office, travel, and general

 

 

5,071

 

 

 

19,495

 

Professional Fees

 

 

7,781

 

 

 

26,601

 

Depreciation

 

 

496

 

 

 

496

 

Total expenses

 

 

(172,793)

 

 

(208,138)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

183

 

 

 

-

 

Interest expense

 

 

(13,917)

 

 

(37,831)

Total other income (expense)

 

 

(13,734)

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$(186,527)

 

$(245,969)

Non-controlling interest in (income) loss of consolidated subsidiaries

 

 

1,207

 

 

 

373

 

Net loss attributable to the company

 

$(185,320)

 

$(245,596 )

 

 

 

 

 

 

 

 

 

Weighted Average Number of Basic and Diluted Common Shares Outstanding

 

 

457,575,777

 

 

 

443,952,889

 

Basic and Diluted Net Loss Per Common Share

 

$(0.00)

 

$(0.00)

 

 
5

Table of Contents

 

HERO TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Non-

 

 

Comprehensive

 

 

 

 

Stockholders’

 

 

 

Common Shares

 

 

Preferred Shares

 

 

Paid-In

 

 

Stock

 

 

 Stock

 

 

Controlling

 

 

Income

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

 Payable

 

 

Receivable

 

 

 Interest

 

 

 (Loss)

 

 

 Deficit

 

 

(Deficit)

 

Balance, January 1, 2022

 

 

442,977,000

 

 

$442,977

 

 

 

1,000,000

 

 

$1,000

 

 

$38,461,909

 

 

 

27,970

 

 

 

-

 

 

$(93,328)

 

$-

 

 

$(38,856,110)

 

$(15,582)

Investment Units issued for cash at $.02 per unit

 

 

1,000,000

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

19,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

20,000

 

Issued for services

 

 

1,480,000

 

 

 

1,480

 

 

 

-

 

 

 

-

 

 

 

67,020

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68,500

 

Common Stock – Related party compensation

 

 

4,235,444

 

 

 

4,235

 

 

 

 

 

 

 

 

 

 

 

177,853

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

182,088

 

Imputed interested on outstanding loan

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

22,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,500

 

Investment Units issued for cash at $.05 per unit

 

 

2,000,000

 

 

 

2,000

 

 

 

-

 

 

 

-

 

 

 

98,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100,000

 

Non-Controlling Interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,246)

 

 

-

 

 

 

-

 

 

 

(26,246)

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(541,583)

 

 

(541,583)

Balance, December 31, 2022

 

 

451,692,444

 

 

 

451,692

 

 

 

1,000,000

 

 

 

1,000

 

 

 

38,846,282

 

 

 

27,970

 

 

 

-

 

 

 

(119,574)

 

 

-

 

 

 

(39,397,693)

 

 

(190,323)

Investment units issued for cash at $0.01 per unit

 

 

1,500,000

 

 

 

1,500

 

 

 

-

 

 

 

-

 

 

 

13,500

 

 

 

-

 

 

 

(15,000)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

Inputed interest on loan

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

7,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

7,500

 

Common Stock – related party compensation

 

 

2,000,000

 

 

 

2,000

 

 

 

-

 

 

 

-

 

 

 

31,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

33,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock - Non-Related party compensation

 

 

6,000,000

 

 

 

6,000

 

 

 

 

 

 

 

 

 

 

 

113,750

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

119,750

 

Non-Controlling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(1,207)

 

 

 

 

 

 

 

 

 

 

(1,207)

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(185,320)

 

 

(185,320)

Balance, March 31, 2023

 

 

461,192,444

 

 

 

461,192

 

 

 

1,000,000

 

 

 

1,000

 

 

 

39,012,032

 

 

 

27,970

 

 

 

(15,000)

 

 

(120,781)

 

 

-

 

 

 

(39,583,013)

 

 

(216,600)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
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Table of Contents

 

HERO TECHNOLOGY, INC. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited)

 

 

 

 Three Months Ended

March 31,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss attributable to Hero Technologies Inc.

 

$(185,320)

 

$(245,596)

Non-controlling interest in income (loss) of consolidated subsidiaries

 

$(1,207)

 

$(373)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Shares issued for services

 

 

152,750

 

 

 

153,800

 

Loss from conversion of debt to common stock

 

 

 

 

 

 

 

 

Depreciation expense

 

 

496

 

 

 

496

 

Imputed Interest

 

 

7,500

 

 

 

-

 

Discount amortization

 

 

-

 

 

 

30,412

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

3,281

 

 

 

1,378

 

Accounts payable and accrued liabilities

 

 

7,365

 

 

 

6,943

 

Cash used in operating activities

 

 

(15,135)

 

 

(52,940)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock

 

 

-

 

 

 

-

 

Borrowings on debt

 

 

-

 

 

 

-

 

Cash provided by financing activities

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

(15,135)

 

 

(52,940)

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF YEAR

 

 

34,325

 

 

 

174,477

 

 

 

 

 

 

 

 

 

 

CASH, END OF YEAR

 

$19,190

 

 

$121,537

 

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Land financed with debt

 

 

-

 

 

 

525,000

 

Stock Receivable for shares issued

 

 

 15,000

 

 

 

 -

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
7

Table of Contents

 

HERO TECHNOLOGIES INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. NATURE OF OPERATIONS

 

Hero Technologies Inc. (the “Company”) was incorporated in the State of Nevada on May 14, 2004. The Company had previously focused on oil and gas exploration in Australia’s Cooper Basin. During 2019, the Company sold its remaining oil and gas assets and discontinued operations in the energy industry. As a result, the financial results related to the oil and gas activity were reflected in the consolidated statements of operations discontinued operations.

 

Hero Technologies Inc. is a cannabis company with a vertically-integrated business model. The company has a majority stake in BlackBox Systems and Technologies LLC, an aeroponic cannabis cultivation system that provides optimal growing conditions to enhance photosynthesis and cultivation of large flowering plants, creating increased harvest efficiencies. The company’s business plan includes cannabis genetic engineering, farmland for both medical and recreational cannabis cultivation, production licenses, distribution licenses, consumer packaging and retail operations, and dispensaries that make the company a multi-state operator (MSO).

 

The Company’s consolidated financial statements are prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“US GAAP”) which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. The Company has not generated operating revenues and has funded its operations through the issuance of capital stock.

 

There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The Company’s ability to continue its operations as a going concern, realize the carrying value of its assets, and discharge its liabilities in the normal course of business is dependent upon: the continued support of its controlling shareholders, its ability to raise capital sufficient to fund its commitments and ongoing losses, and ultimately generating profitable operations.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

These consolidated financial statements and related notes are presented in accordance with US GAAP, and are expressed in United States dollars. These statements include the accounts of the Company and its wholly owned subsidiaries First Endeavor Holdings, Inc. (“FEH”), Veteran Hemp Co (“Veteran”), and its majority owned subsidiary Blackbox Technologies and Systems (“Blackbox”). All intercompany transactions and balances have been eliminated.

 

In the opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for a fair presentation have been included.

 

Accounts Receivable

 

Accounts receivable consist of trade receivables and are carried at their estimated collectible amounts.

 

The Company provides credit to its clients in the form of payment terms. The Company limits its credit risk by performing credit evaluations of its clients and maintaining a reserve, if deemed necessary, for potential credit losses. Such evaluations include the review of a client’s outstanding balances with consideration towards such client’s historical collection experience, as well as prevailing economic and market conditions and other factors. Based on such evaluations, the Company determined to write off $620 of accounts receivable at the end of December 31, 2022. The total accounts receivable was $0 at March 31, 2023 and $0 as of December 31, 2022. 

 

 
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Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight- line method over the estimated useful lives of the assets, ranging from three to seven years. The cost and related accumulated depreciation and amortization of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reported as current period income or expense. The costs of repairs and maintenance are expensed as incurred. The total value of property and equipment at March 31, 2023 is $603,833 and $604,330 at December 31, 2022.

 

 

 

Asset Purchase Price

 

 

Accumulated Depreciation

 

Land (2022-current)

 

 

600,000

 

 

 

0

 

Furniture and Fixtures 5-7 Years (2021-current)

 

$6,030

 

 

$(2,715 )

Computer Equipment and Software 3-5 Years (2021-current)

 

 

2,331

 

 

 

(1,813 )

 

Intangible Assets / Goodwill

 

The Company accounts for certain intangible assets at cost. Management reviews these intangible assets for probable impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If there is an indication of impairment, management would prepare an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these estimated cash flows were less than the carrying amount, an impairment loss would be recognized to write down the asset to its estimated fair value. The Company performed a qualitative assessment of certain of its intangible assets and determined that $60,700 of intangible trademarks and customer base included with the Veteran Hemp Co acquisition be impaired and that $5,881 of goodwill associated to Veteran Hemp Co be impaired as of December 31, 2021.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Revenue Recognition

 

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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Cash, Cash Equivalents

 

The Company considers all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents. Cash totaled $19,190 and $34,325 at March 31, 2023 and December 31, 2022, respectively. The Company is exposed to a concentration of credit risk with respect to its cash deposits. The Company places cash deposits with highly rated financial institutions in the United States. At times, cash balances held in financial institutions may be more than insured limits. The Company believes the financial institutions are financially strong and the risk of loss is minimal. The Company has not experienced any losses with respect to the related risks and does not believe its exposure to such risks is more than normal.

 

Fair Market Measurements

 

The Company estimates the fair values of financial and non-financial assets and liabilities under ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASC Topic 820 provides a framework for consistent measurement of fair value for those assets and liabilities already measured at fair value under other accounting pronouncements. Certain specific fair value measurements, such as those related to share-based compensation, are not included in the scope of ASC Topic 820. Primarily, ASC Topic 820 is applicable to assets and liabilities related to financial instruments, to some long-term investments and liabilities, to initial valuations of assets and liabilities acquired in a business combination, and to long-lived assets written down to fair value when they are impaired. It does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules. ASC Topic 820 applies to assets and liabilities carried at fair value on the consolidated balance sheet, as well as to supplement fair value information about financial instruments not carried at fair value.

 

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs.

 

Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

 

 

·

Level 1 - quoted prices in active markets for identical assets or liabilities.

 

 

 

 

·

Level 2 - inputs other than quoted prices which are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

 

 

 

 

·

Level 3 -unobservable inputs that reflect the Company’s own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instrument’s complexity.

 

In accordance with ASC Topic 820, valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types: market approach, income approach and cost approach. The Company had no outstanding securities at March 31, 2023.

 

The Company uses the market approach technique to account for its financial instruments at fair value for the period ended March 31, 2023, and the application of this technique applied to similar assets and liabilities has been applied on a consistent basis.

 

Income Taxes

 

Income taxes are determined using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

 

The Company accounts for uncertainty in income taxes by applying a two-step method. First, it evaluates whether a tax position has met a more likely than not recognition threshold, and second, it measures that tax position to determine the amount of benefit, if any, to be recognized in the financial statements. The application of this method did not have a material effect on the Company’s consolidated financial statements.

 

 
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Stock Based Compensation

 

The Company records compensation expense in the consolidated financial statements for share based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees is measured based on the fair value of the goods and services received. Share-based compensation is expensed with a corresponding increase to share capital. Upon the exercise of the stock options, the consideration paid is recorded as an increase in share capital.

 

Other Comprehensive Income (Loss)

 

The Company reports and displays comprehensive income and loss and its components in the consolidated financial statements. For the years ended March 31, 2023 and 2022, the only components of comprehensive income were foreign currency translation adjustments.

 

Earnings (Loss) Per Share

 

The Company presents both basic and diluted earnings per share (“EPS”) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Diluted EPS figures are equal to those of Basic EPS for each period since the Company had no securities outstanding during periods in which the Company generated net income that were potentially dilutive.

 

Recently Adopted Accounting Pronouncements

 

During the year ended December 31, 2022, the Company adopted ASC 2020-06,  “Debt – Debt with Conversion and Other Options (Subtopic 47020)  and  Derivatives and Hedging – Contracts in Entities Own Equity (Subtopic 81540).”  ASC 2020-06  reduces the number of acceptable methods of accounting models for  convertible debt instruments and convertible preferred stocks. The implementation of ASC 2020-06  had no material impact on the Company’s consolidated  financial statements.

 

 
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3.  RELATED PARTY TRANSACTIONS

 

Interest to related parties was $0 at March 31, 2022 compared to $15,000 at December 31, 2022.

 

On March 15, 2022, the Company issued 2,000,000 shares of restricted common stock to Topline Holdings Inc in consideration for advisor and managerial services. The shares were priced at $0.052 at a fair value of $104,000.

 

On September 9, 2022, the Company issued Topline Holdings Inc 2,000,000 shares of restricted common stock in consideration for advisor and managerial services at a fair value of $66,000 at a stock price of $0.033.

 

On September 27, 2022, the Company issued Richard Bowersock Inc 166,000 shares of restricted common stock in consideration for consulting services at a fair value of $9,130 at a stock price of $0.055.

 

On October 1, 2021 the Company entered into a note to borrow $200,000 over a 6 month period with interest of $15,000 and issuance of 750,000 shares of common stock to an unrelated accredited investor. The common shares were at fair value at a stock price of $0.081 per share. The common shares were at fair value at a stock price of $0.081 per share and were issued as an inducement to provide the note. This has been treated as a discount and amortized over the life of the note.

 

On October 13, 2021 the Company engaged North Equities for three months of consulting services to assist with Social Media and Client Outreach. In consideration for these services the company issued 632,912 shares of common stock at a fair value of $50,000 at a stock price of $0.079.

 

On November 7, 2022, the Company issued Marcin Drwila 69,444 shares of restricted common stock in consideration for consulting services at a fair value of $2,958 at a stock price of $0.043.

 

On March 31, 2023, the Company issued Topline Holdings Inc 2,000,000 shares of restricted common stock in consideration for advisor and managerial services at a fair value of $33,000 at a stock price of $0.0165.

 

4.  CAPITAL STOCK

 

Preferred Stock

 

On May 1, 2020, the Company issued 1,000,000 shares of its Series A preferred stock to Magenta Value Holdings, LLC resulting in a change in management of the entity.  The Series A preferred shares have the right to cast 90% of the total votes with respect to any and all matters presented to the stockholders of the Company for their action or consideration. The Series A preferred shares are not entitled to any dividends or liquidation preferences and are not convertible into shares of the Company’s common stock.

  

Common Stock

 

On July 20, 2020, the Company changed its name from Holloman Energy Corporation to Hero Technologies Inc. and increased its authorized capitalization to 950,000,000 shares of common stock with a par value of $0.001.

 

 

 
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On January 19, 2022, the Company issued 330,000 shares of restricted common stock to Juddah Holdings LLC in consideration for consulting services. The shares were priced at $0.05. at a fair value of $19,800.

 

On February 5, 2022, the Company issued 600,000 shares of restricted common stock to Jack Becker in consideration for consulting services. The shares were priced at $0.052. at a fair value of $30,000.

 

On March 15, 2022, the Company issued 2,000,000 shares of restricted common stock to Topline Holdings Inc in consideration for advisor and managerial services. The shares were priced at $0.052 at a fair value of $104,000.

 

On June 27, 2022, the Company sold 2,000,000 shares of common stock to an unrelated accredited investor. The shares were sold at a price of $0.05 per share. Proceeds from the private placement totaled $100,000. The entire $100,000 was paid in cash.

 

On September 09, 2022, the Company issued Topline Holdings Inc 2,000,000 shares of restricted common stock in consideration for advisor and managerial services at a fair value of $66,000 at a stock price of $0.033.

 

On September 5, 2022, the Company issued 550,000 shares of restricted common stock to Jack Becker in consideration for consulting services. The shares were priced at $0.034 at a fair value of $18,700.

 

On September 27, 2022, the Company issued 166,000 shares of restricted common stock to Richard Bowersock in consideration for consulting services. The shares were priced at $0.055 at a fair value of $9,130.

 

On November 1, 2022, the Company sold 1,000,000 shares of common stock to an unrelated accredited investor. The shares were sold at a price of $0.020 per share. Proceeds from the private placement totaled $20,000. The entire $20,000 was paid in cash.

 

On November 7, 2022, the Company issued Marcin Drwila 69,444 shares of restricted common stock in consideration for consulting services at a fair value of $2.958 at a stock price of $0.043.

 

On January 3, 2023, the Company issued 5,000,000 shares of restricted common stock to Igala Commonwealth Limited Trust Company in consideration for consulting services. The shares were priced at $0.020 at a fair value of $100,000.

 

On January 30, 2023, the Company sold 1,500,000 shares of common stock to an unrelated accredited investor. The shares were sold at a price of $0.010 per share. Proceeds from the private placement totaled $15,000. The entire $15,000 is to be paid in cash and has been recorded as a stock receivable as of March 31, 2023.

 

On February 2, 2023, the Company issued 500,000 shares of restricted common stock to Shereef Elkhafif in consideration for consulting services. The shares were valued based on the day’s closing price at $0.023 and a fair value of $11,500.

 

On March 31, 2023, the Company issued Topline Holdings Inc 2,000,000 shares of restricted common stock in consideration for advisor and managerial services at a fair value of $33,000 which was based on the day’s share closing  price of $0.0165. This is a related party transaction.

 

On March 31, 2023, the Company issued 500,000 shares of restricted common stock to Shereef Elkhafif in consideration for consulting services. The shares were valued based on the day’s closing price at $0.0165 and a fair value of $8,250.

 

5.  NON-CONTROLLLING INTEREST

 

Non-controlling interest in loss of consolidated subsidiaries was $1,207 and $26,246 for March 31, 2023 and December 31, 2022 respectively. The loss from non-controlling interest resulted in the legal and early construction expenses related to Blackbox Technologies and Systems Inc.’s commencement of the Michigan growth facility. The Company has a 51% equity interest in Blackbox Technologies and Systems. LLC. Blackbox Technologies and Systems, LLC.

 

6. PREPAIDS

 

Prepaids consisted primarily of OTC annual fees totaling $3,282 and $6,563 for March 31, 2023 and December 31, 2022 respectively.

 

7. COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings 

 

The Company may be subject to legal proceedings and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity. 

 

 
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8. PROPERTY, PLANT, AND EQUIPMENT

 

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight- line method over the estimated useful lives of the assets, ranging from three to seven years. The cost and related accumulated depreciation and amortization of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is reported as current period income or expense. The costs of repairs and maintenance are expensed as incurred. The total value of property and equipment at March 31, 2023 is $603,833 and $604,330 at December 31, 2022.

 

 

 

Asset Purchase Price

 

 

Accumulated Depreciation

 

Land (2022-current)

 

 

600,000

 

 

 

0

 

Furniture and Fixtures 5-7 Years (2021-current)

 

$6,030

 

 

$(2,715 )

Computer Equipment and Software 3-5 Years (2021-current)

 

 

2,331

 

 

 

(1,813 )

 

 

9.  SUBSEQUENT EVENTS

 

On April 6, 2023, the Company issued 750,000 shares of restricted common stock to Shereef Elkhafif in consideration for consulting services.

 

On April 6, 2023, the Company issued 250,000 shares of restricted common stock to Aaron Scott Haney in consideration for consulting services.

 

On April 6, 2023, the Company issued 250,000 shares of restricted common stock to Calum Rodger in consideration for consulting services.

 

On April 7, 2023, the Company issued 250,000 shares of restricted common stock to Shereef Elkhafif in consideration for consulting services.

 

On April 10, 2023, the Company issued 1,000,000 shares of restricted common stock to Shereef Elkhafif in consideration for consulting services.

 

On April 10, 2023, the Company issued 500,000 shares of restricted common stock to Ryan Smith in consideration for consulting services.

 

On April 17, 2023, the Company assigned their 10-acre property in the Vassar Township to DMB LLC in consideration for undertaking all liabilities associated to the land.

 

On May 4, 2023 HENC executed a Letter of Intent with LoadzPro by which HENC will acquire all the outstanding shares of LoadzPro in accordance with the following terms: (1) HENC will issue subordinate convertible preferred shares in the amount of $5,000,000 to all LoadzPro shareholders; (2) The convertible preferred shares in the face amount of 5 million dollars are convertible only into control shares of LoadzPro when it is spun out. Loadzpro is an AI Powered Digital Freight Company that leverages its network of 10,000+ Trucks & Truck Drivers to move loads for shippers.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Overview

 

Hero Technologies Inc. is an early stage cannabis company. The company has a majority stake in BlackBox Systems and Technologies LLC. BlackBox is an aeroponic cannabis cultivation system that provides optimal conditions to enhance photosynthesis and cultivation of large flowering plants, creating increased efficiencies. The BlackBox project consists of environmental growth chambers for the cultivation of large flowering plants based on aeroponic technology. Hero Technologies owns and operates HighlyRelaxing.com under Highly Relaxing LLC. The Company also operates VeteranHempCo.com after the acquisition of V Brokers LLC assets.

 

Our flagship project, Blackbox has applied to the state of Michigan for marijuana licenses which, if granted, will allow Blackbox to cultivate cannabis for sale in the state of Michigan. Blackbox is currently seeking two Michigan marijuana licenses, one for adult use and one for medicinal use. The current status of Blackbox’s marijuana license may be summarized as follows:

 

Our flagship project, Blackbox has applied to the state of Michigan for marijuana licenses which, if granted, will allow Blackbox to cultivate cannabis for sale in the state of Michigan. Blackbox is currently seeking two Michigan marijuana licenses, one for adult use and one for medicinal use. The current status of Blackbox’s marijuana license may be summarized as follows:

 

 

·

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 $150 to $350 per pound, and estimate selling cannabis at wholesale prices between $2,400 and $3,200. The end goal is to become a Multi-State Operator (MSO) that is fully integrated from seed to sale

 

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.  The Company is continuing to look for investors as well as experienced personnel to increase the facilitation of future development of the Company. Management is also reviewing other business opportunities and researching other areas for the business. 

 

 
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Since inception of Hero Technologies, we have devoted the majority of our resources to acquiring assets and subsidiaries, organizing and staffing our company, business planning and execution, and raising capital.

 

 

·

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 $245,596 for the three months ended March 31, 2022, and $185,320 for the three months ended March 31, 2023.

 

·

As of March 31, 2023, we had an accumulated deficit of $ 39,583,013.

 

·

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 March 31, 2023, only Veteran Hemp Co. has generated any revenue.

 

Material changes in our Statement of Operations for the periods shown below compared to the prior periods are discussed below: 

 

Three months ended March 31, 2023

 

Item

 

Increase (I) or

Decrease (D)

 

Reason

Consulting Expense

 

I

 

Increased activity in marketing

Impairment of Intangibles

 

-

 

No change

Compensation Expense

 

D

 

Decreased due to a decline in the issuance of stock-based compensation

Office, Travel and General

 

D

 

Decreased activity due to a decline in 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 in Michigan under Blackbox

 

·

Timing related to construction and actual production of cannabis

 

·

Wholesale cannabis prices in the state of Michigan

 

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 Three Months Ended March 31, 2023 and March 31, 2022.

 

 

 

 Three months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2023

 

 

2022

 

Sales

 

$-

 

 

 

-

 

Cost of goods sold

 

 

-

 

 

 

-

 

Gross profit

 

 

-

 

 

 

-

 

Operating Expenses

 

 

 

 

 

 

 

 

Consulting

 

 

6,695

 

 

 

3,271

 

Compensation

 

 

152,750

 

 

 

153,800

 

Office, travel, general

 

 

5,071

 

 

 

19,495

 

Professional fees

 

 

7,781

 

 

 

26,601

 

Other

 

 

496

 

 

 

1,400

 

Total Operating Expenses

 

 

(172,793)

 

 

(204,567)

Other income (expense), net

 

 

(13,734)

 

 

-

 

Net loss

 

$(186,527)

 

$(204,567 )

 

 
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Revenue and Cost of Goods Sold

 

There was no change in sales for the three months ended March 31, 2023. No sales were recorded in March 2023. Similarly, there was no change in cost of goods sold for the three months ended March 31, 2023

 

Operating Expenses

 

Operating expenses decreased from $204,567 to $172,793. This decline was driven by a decrease in consulting expenses, compensation expenses, professional fees, and office, travel, and general expenses.

 

Consulting

 

Consulting expenses increased from $3,271 to $6,695. This increase was driven by an increase in marketing activity.

 

Compensation

 

Compensation expenses decreased from $153,800 to $152,750. Compensation was higher in March 2022 due to the issuance of stock-based compensation.

 

Professional Fees

 

Professional fees decreased from $26,601 to $7,781. This decrease was driven by a decline in cannabis licensing projects.

 

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 Nevada under the name “Holloman Energy Corporation.” The Company had previously focused on oil and gas exploration in Australia’s Cooper Basin. However, during 2019, the Company sold its remaining oil and gas assets and discontinued operations in the energy industry. On May 1, 2020, Holloman Energy Corporation Series A Preferred Shares were purchased by Magenta Value Holdings LLC. On July 20, 2020, the Company changed its name to Hero Technologies Inc. with the state of Nevada. After which, the Company begun making the transition into the cannabis industry.

 

On September 10, 2020, Hero Technologies Inc. formed the company Blackbox Technologies and Systems LLC and entered into an operating agreement. The name was subsequently changed to Blackbox Systems and Technologies LLC. The Blackbox project consists of environmental growth chambers for the cultivation of large flowering plants based on aeroponic technology. On November 3, 2020, the Company purchased Veteran Hemp Co., which operates an international retail and wholesale online store selling cannabis and cannabidiol. On November 4, 2020, the Company purchased a www.highlrelaxing.com and began selling CBD topicals and rubs under the name “Highly Relaxing”. Today, Hero Technologies Inc. is a cannabis company with a vertically integrated business model and plan that includes cannabis genetic engineering, farmland for medical and recreational cannabis cultivation, production licenses, distribution licenses, consumer packaging, retail operations and dispensaries. The Company focuses on two principal segments of the cannabis industry, (i) cultivation and (ii) the dispensary business model, including combinations. The Company is an expanding vertically integrated, cannabis operator, focusing on high-growth markets. Hero Technologies Inc. pairs premier seed genetics and growing techniques, with plans to utilize and expand its growing technology/techniques to all its facilities and operations. The Company’s business model includes cultivation, licensing operations, processing operations, processing facilities, sale of products, brand creation, and technology development.

 

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 March 2023, we have funded our operations through proceeds from the sale of stock, borrowings on debt, and shares issued for service. We expect our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, to enable us to fund our operating expenses and capital expenditure requirements for the foreseeable future.

 

 
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Our sources and (uses) of cash for the three months ended March 31, 2023 and 2022 are shown below:

 

 

 

2023

 

 

2022

 

 

 

$ 

 

 

$ 

 

Cash provided by (used in) operations

 

 

(15,135)

 

 

(52,940)

Cash received upon sale of subsidiary

 

 

-

 

 

 

-

 

Cash provided by (used in) investing activities

 

 

-

 

 

 

-

 

Cash provided by (used in) financing activities

 

 

-

 

 

 

-

 

Changes in exchange rates

 

 

-

 

 

 

-

 

 

Our material capital commitments for the nine months ending March 31, 2023 are:

 

Description

 

Amount

 

(Include all amounts pertaining to Blackbox, cannabis licensing, pre-acquisition development, land acquisition construction, etc.)

 

$9,000,000

 

 

Operating Activities

 

During the three months ended March 31, 2022, we used $52,940 of cash in operating activities. Cash used in operating activities reflected our net loss of $245,969 and a net decrease of $21,475 in our operating assets and liabilities. The primary use of cash was to fund our operations related to compensation expenses, consulting expenses, and professional fees.

 

During the three months ended March 2023, we used $15,135 of cash in operating activities. Cash used in operating activities reflected our net loss of $185,320, offset by operating assets and liabilities of $170,185. The primary use of cash was to fund our operations related to compensation expenses, consulting expenses, and professional fees.

 

Investing Activities

 

During the three months ended March 31, 2022 we used $0 in non-cash investing activities, primarily due to liabilities settled with common stock. During the three months ended March 31, 2023, we received $0 for investing activities.

 

Financing Activities

 

During the three months ended March 31, 2022, financing activities provided $470,000. During the three months ended March 31, 2023, we received $0 from financing activities.

 

We anticipate material capital requirements of $9,000,000 for the twelve months ending March 31, 2024.

 

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 the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

See Note 2 to the December 31, 2022 Financial Statements included as part of this document for a summary of our significant accounting policies. 

 

 
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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 March 31, 2023 raise some or substantial doubt about the Company’s ability to continue as a going concern.

 

Recent Accounting Pronouncements

 

During the year ended December 31, 2022, the Company adopted ASC 2020-06,  “Debt – Debt with Conversion and Other Options (Subtopic 47020)  and  Derivatives and Hedging – Contracts in Entities Own Equity (Subtopic 81540).”  ASC 2020-06  reduces the number of acceptable methods of accounting models for  convertible debt instruments and convertible preferred stocks. The implementation of ASC 2020-06  had no material impact on the Company’s consolidated  financial statements.

 

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 District of Columbia allow its citizens to use Medical Marijuana. Additionally, 15 states and the District of Columbia have legalized cannabis for recreational use by adults. The state laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Biden Administration, if it follows Obama Administration policies, is not likely to use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the Administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the Federal Government’s enforcement of current federal laws could cause significant financial damage to us.

 

 
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The Department of Justice has stated that it will continue to enforce the Controlled Substance Act with respect to marijuana to prevent:

 

 

·

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed 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 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 by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures and any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their control objectives.

 

As of the end of the period covered by this report, management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based upon the evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.

 

Changes in Internal Controls Over Financial Reporting:

 

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II

 

Item 1. Legal Proceedings.

 

Not Applicable.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this Item.

 

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

 

The Company relied upon the exemption provided by Rule 504 of the Securities and Exchange Commission in connection with the sale of these shares. There was no general solicitation in connection with the sale of these shares. The persons who acquired these securities acquired them for their own accounts. The securities cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission was paid in connection with the sale of these securities.

 

On May 6, 2019, the Company issued 578,409 shares to Holloman Value Holdings LLC at $0.013 per share.

 

On December 31, 2019, the Company issued 885,714 shares to Holloman Value Holdings LLC at $0.007 per share.

 

On November 11, 2020, the Company issued 3,757,437 shares to Kevin Gerbers at $0.024 per share.

 

On November 24, 2020, the Company issued 8,349,860 shares to Konkler Enterprises LLC at $0.024 per share.

 

On December 1, 2020, the Company issued 100,000,000 shares to James Bradley at $0.0043 per share.

 

On December 23, 2020, the Company issued 250,000 shares to Chesapeake Group, Inc at $0.03 per share.

 

On December 31, 2020, the Company issued 100,000,000 shares to Dark Alpha Capital, at $0.00001 per share

 

On January 7, 2021, the Company issued 2,920,896 shares to Kevin Gerbers, at $0.024 per share.

 

On January 18, 2021, the Company issued 2,800,000 shares to Patriot Shield National LLC at $0.05 per share.

 

On January 23, 2021, the Company issued 250,000 shares to Chesapeake Group, INC, at $0.01 per share.

 

On January 29, 2021, the Company issued 6,259,063 shares to Konkler Enterprises at $0.024 per share.

 

On January 29, 2021 the Company issued 1,252,479 shares to Travis Clegg at $0.024 per share.

 

On February 12, 2021, the Company issued 834,986 shares to Christopher Garten at $0.024 per share.

 

On February 22, 2021, the Company issued 65,494,349 shares to P2B Capital LLC at $0.035 per share.

 

 
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On February 22, 2021, the Company issued 2,337,228 shares to James Bradley at $0.001 per share.

 

On March 30, 2021, the Company issued 300,000 shares to Chesapeake Group, Inc. at $0.001 per share.

 

On September 15, 2021, the Company issued 875,000 shares to Topline Holdings, Inc. at $0.001 per share.

 

On October 1, 2021, the Company issued 750,000 shares to Konkler Enterprises LLC at $0.0667 per share.

 

On October 11, 2021, the Company issued 300,000 shares to Chesapeake Group, Inc. at $0.001 per share.

 

On October 13, 2021, the Company issued 632,912 shares to North Equities Corporation at $0.001 per share.

 

On December 14, 2021, the Company issued 500,000 shares to Henry Leo Staples Jr. at $0.01 per share.

 

On January 19, 2022, the Company issued 330,000 shares to Juddah Holdings LLC at $0.06 per share.

 

On February 5, 2022, the Company issued 600,000 shares to Jack Becker at $0.05 per share.

 

On March 15, 2022, the Company issued 2,000,000 shares to Topline Holdings Inc at $0.051 per share.

 

On June 27, 2022, the Company issued 2,000,000 shares to an unrelated accredited investor at $0.05 per share.

 

On September 09, 2022, the Company issued 2,000,000 shares to Topline Holdings Inc at $0.033 per share.

 

On September 5, 2022, the Company issued 550,000 shares to Jack Becker at $0.034 per share.

 

On September 27, 2022, the Company issued 166,000 shares to Richard Bowersock at $0.055 per share.

 

On November 1, 2022, the Company sold 1,000,000 shares to an unrelated accredited investor at $0.020 per share.

 

On November 7, 2022, the Company issued Marcin Drwila 69,444 shares at a stock price of $0.043 per share.

 

On January 3, 2023, the Company issued 5,000,000 shares of restricted common stock to Igala Commonwealth Limited Trust Company at $0.020 per share.

 

On January 30, 2023, the Company sold 1,500,000 shares of common stock to an unrelated accredited investor at a price of $0.010 per share.

 

On February 2, 2023, the Company issued 500,000 shares of restricted common stock to Shereef Elkhafif at $0.023 per share.

 

On March 31, 2023, the Company issued Topline Holdings Inc 2,000,000 shares at $0.0165 per share.

 

On March 31, 2023, the Company issued 500,000 shares of restricted common stock to Shereef Elkhafif at $0.0165 per share.

 

The Company relied upon the exemption provided by Section 4(a)(2) of the Securities Act of 1933 in connection with sale of these securities. The persons who acquired these securities were sophisticated investors and were provided full information regarding the Company’s operations. There was no general solicitation in connection with the sale of these securities. The persons who acquired these securities acquired them for their own accounts. The securities cannot be sold except pursuant to an effective registration statement or an exemption from registration. No commission was paid in connection with the sale of these securities.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

 
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Item 6. Exhibits.

 

The following exhibits are filed with or incorporated by referenced in this report:

 

Item No.

 

Description

3.1

 

Articles of Incorporation, as amended *

3.2

 

Bylaws *

10.2

 

Advisory and Consulting Agreement with Gina Serkasevich *

21.1

 

Subsidiaries *

31.1

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

__________________

* Incorporated by reference to the same

 

 
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SIGNATURE

 

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

 

 

HERO TECHNOLOGIES, INC.

 

 

 

 

 

DATED: May 17, 2023

By:

/s/ Gina Serkasevich

 

 

 

Gina Serkasevich, Principal Executive,

 

 

 

Financial and Accounting Officer

 

 

 
27

 

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