Overview
majority stake in
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.
Relaxing LLC
of
Our flagship project, Blackbox has applied to the state of
marijuana licenses which, if granted, will allow Blackbox to cultivate cannabis
for sale in the state of
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
marijuana licenses which, if granted, will allow Blackbox to cultivate cannabis
for sale in the state of
marijuana licenses, one for adult use and one for medicinal use. The current
status of Blackbox’s marijuana license may be summarized as follows:
路 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.
路 To date, Blackbox has spent approximately $190,577 in pursuit of a
marijuana license.
路 Per the MRA, Blackbox is required to pay an initial fee of $40,000 for
each license.
路 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.
路 These licenses will allow Blackbox to cultivate cannabis, within the state
of Michigan , for adult use and medicinal use.
路 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.
路 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.
路 Failure to pass an inspection by the BFS within 60 days may result in the
denial of the license.
路 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.
路 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:
路 Under rule 420.102(1), one who holds a Class C marijuana license for adult
use is permitted to grow 2,000 marijuana plants
路 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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路 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.
路 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:
路 a serialized tag must be attached to every plant,
路 and labels must be attached to wholesale packages
路 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.
路 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.
路 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:
路 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
路 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.
路 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.
路 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.
路 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
路 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
cannabis at wholesale prices between
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.
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Since inception of
resources to acquiring assets and subsidiaries, organizing and staffing our
company, business planning and execution, and raising capital.
路 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.
路 We have funded our operations primarily through issuance of shares for
services and proceeds from sale of stock.
路 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 .
路 As of September 30, 2022 , we had an accumulated deficit of $ 39,291,611 .
路 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:
路 Funding for construction of greenhouses inMichigan under Blackbox 路 Timing related to construction and actual production of cannabis 路 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
a decrease from
sold similarly decreased by
Operating Expenses
Operating expenses decreased from
by a decrease in consulting expenses, compensation expenses, professional fees,
and office, travel, and general expenses.
Consulting
Consulting expenses decreased from
by a decline in licensing and marketing activity.
Compensation
Compensation expenses decreased from
higher in
Professional Fees
Professional fees decreased from
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
“
exploration in
its remaining oil and gas assets and discontinued operations in the energy
industry. On
were purchased by
changed its name to
which, the Company begun making the transition into the cannabis industry.
On
Technologies and Systems LLC
was subsequently changed to
project consists of environmental growth chambers for the cultivation of large
flowering plants based on aeroponic technology. On
purchased
online store selling cannabis and cannabidiol. On
purchased a www.highlrelaxing.com and began selling CBD topicals and rubs under
the name “Highly Relaxing”. Today,
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.
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
2022
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 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 endingSeptember 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
operating activities. Cash used in operating activities reflected our net loss
of
were non-cash charges of approximately
our operations related to compensation.
During the nine months ended
operating activities. Cash used in operating activities reflected our net loss
of
use of cash was to fund our operations related to compensation expenses,
consulting expenses, and professional fees.
Investing Activities
During the nine months ended
activities, primarily due to liabilities settled with common stock. During the
nine months ended
Financing Activities
During the nine months ended
from financing activities.
We anticipate material capital requirements of
ending
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:
路 Regulatory and statutory developments regarding the legalization and
commercialization of the marijuana industry in the United States
路 Compensation expenses related to our growing platform
路 Business development opportunities in the form of targeted acquisitions of
subsidiaries
路 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
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
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
the Company’s ability to continue as a going concern.
Recent Accounting Pronouncements
In
Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805)
Clarifying the Definition of a Business. The amendments in this update clarify
the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The definition of a business
affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The guidance is effective for interim and annual periods
beginning after
after the effective date. The Company does not believe the adoption of ASU
2017-04 had any material impact on its 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
its citizens to use Medical Marijuana. Additionally, 15 states and the
of Columbia
laws are in conflict with the Federal Controlled Substances Act, which makes
marijuana use and possession illegal on a national level.
Administration
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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Controlled Substance Act with respect to marijuana to prevent:
路 the distribution of marijuana to minors;
路 criminal enterprises, gangs and cartels receiving revenue from the sale of
marijuana;
路 the diversion of marijuana from states where it is legal under state law
to other states;
路 state-authorized marijuana activity from being used as a cover or pretext
for the trafficking of other illegal drugs or other illegal activity;
路 violence and the use of firearms in the cultivation and distribution of
marijuana;
路 driving while impaired and the exacerbation of other adverse public health
consequences associated with marijuana use;
路 the growing of marijuana on public lands; and
路 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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