HFACTOR, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled "Selected Financial Data" and our financial statements and related notes included elsewhere in this Registration Statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this Registration Statement, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those described below.
We define our accounting periods as follows: "fiscal 2020" -
This Management's Discussion and Analysis ("MD&A") reports on the operating
results and financial condition of the Company for the years ended
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The MD&A and Annual Financial Statements have been prepared in accordance with
general accepted principles in
All significant intercompany balances and transactions were eliminated on consolidation.
Company History and Summary
The Company's fiscal year end is
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In addition, on
In connection with the transactions contemplated by the Agreement, the business of the Company, operating through its wholly owned subsidiary, Standard, will concentrate on the purchase, development and operation of acquiring and developing growing space and related facilities and leasing our facilities to marijuana growers and dispensary owners for their operations in jurisdictions where such operations are consistent with state and local law.
In
12 Plan of Operations Proposed Activities
We are in the process of identifying properties for purchase in
More importantly with the assistance of our consultants, we have developed a fully scalable design model centered around maximizing yields and meeting the needs of cannabis cultivators which will be our tenants. We believe that the cornerstone of our model is maximizing yields by properly implementing cutting edge technology that will maintain an ideal controlled environment for our tenant cultivators. It is anticipated that each property will be remodeled, in the case of existing structures; and designed, in the case of new construction, to contain numerous independent growers.
Each space will be a full-scale commercial cultivating facility with bay door access, adequate flowering, vegetative growth and propagating space including but not limited to access to large areas for harvesting and state of the art curing chambers. Our security will be on premise 24 hours per day. An IT camera system will be operational monitoring the inside and outside of the facility. Our design model is fully scalable. We believe that the cornerstone of our model is maximizing yields by properly implementing cutting edge technology that will maintain an ideal controlled environment for our tenant cultivators. This begins with an advanced controlled environment that is protected from the outside environment. Specialized HVAC systems will maintain a constant temperature, humidity, airflow and CO2 with precise controls. High intensity discharge lighting systems will provide the ideal environment for growing. An integrated irrigation system can be modified to each tenant's specifications and requirements.
Our design model anticipates that our building will have "state of the art" security systems that will fully protect our tenant cultivator's crops and property as well as allow our tenants to view and monitor their crops remotely. In addition, our tenant cultivators will have a fully secure ingress and egress to our facility. Our design model also features solar power system in order to be more cost efficient and provide less of a carbon footprint. Our design model will ensure that our tenant cultivators will maximize their yields.
Management is currently seeking to identify a suitable warehouse building in the
county of
Management has been engaged in discussions with private debt lenders with respect to the financing of the initial building locations. Although no agreements or commitments for such funding have been offered, Management believes that it will be able to obtain financing of the initial property; however, the terms of such financing will be less favorable than those offered to non-cannabis business due to the current state of Federal laws as set forth herein. Management believes that, assuming a suitable property is located and secured with a purchase agreement, the property purchase can be closed during the third quarter of 2021.
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Upon the closing of the property purchase, the company will execute its build out pursuant to the business plans set forth above (i.e., dividing the property into separate leasable growing space for tenant cultivators; each leasable "unit" containing all of the necessary equipment and features for a full scale commercial cultivating facility; including but not limited to:
(i) HVAC systems that will maintain a constant temperature, humidity, airflow
and CO2 with precise controls;
(ii) High intensity discharge lighting systems will provide the ideal
environment for growing;
(iii) An integrated irrigation system; and
(iv) Security.
Management anticipates that the buildout of the property will take at least six (6) months following the date of the consummation of the purchase of the property. Prior to the consummation of the buildout of the property, Management anticipates hiring employees to manage the property and engage the tenant cultivators. Assuming a suitable property is located and secured with a purchase agreement and the property purchase is closed during the second quarter of 2021, the property will be ready to lease to tenant cultivators by the fourth quarter of 2021 which would generate the initial revenue of the Company. The company expects to utilize private funding sources to finance the build out of the property. No agreements or commitments for such funding have been offered. Management anticipates that it will need to provide security for the financing of the property and the buildout of the property by way of a mortgage on the property as well as a security agreement for the equipment purchased in the buildout.
We believe that implementing our design model in an existing building or new construction will be a complete solution for the professional cultivator. Our plans will be dependent upon our ability to raise the capital required to acquire properties and remodel or construct such properties. We also intend to offer to our tenant cultivators certain value-added services that will be provided at additional costs. Such services may include but certainly will not be limited to fertilizer, additives, vitamins, and grow consultants.
Generally, the ownership and operation of real properties are subject to various laws, ordinances and regulations, including regulations relating to zoning, land use, water rights, wastewater, storm water runoff and lien sale rights and procedures.
Zoning sets forth the approved use of land in any given city, county or municipality. Zoning is set by local governments or local voter referendum and may otherwise be restricted by state laws. For example, under certain state laws a seller of liquor may not be allowed to operate within 1,000 feet of a school. There are similar restrictions imposed on cannabis operators, which will restrict where cannabis operations may be located and the manner and size to which they can grow and operate. These zoning restrictions vary in each State, County, City and Township. Zoning can be subject to change or withdrawal, and properties can be re-zoned. The zoning of our properties will have a direct impact on our business operations.
In addition, other laws, ordinances or regulations, such as the Comprehensive Environmental Response and Compensation Liability Act (known as "CERCLA") and its state analogs, or any changes to any such laws, ordinances or regulations, could result in or increase the potential liability for environmental conditions or circumstances existing, or created by tenants or others, on our properties. Laws related to upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of our properties or other impairments to operations, any of which would adversely affect our cash flows from operating activities.
Our property management activities, to the extent we are required to engage in them due to lease defaults by tenants or vacancies on certain properties, will likely be subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.
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The properties that we acquire will be leased to tenant cultivators who will use their leased properties primarily for cultivation and production of cannabis and thus will be subject to the laws, ordinances and regulations of state, local and federal governments, including laws, ordinances and regulations involving land use and usage, water rights, treatment methods, disturbance, the environment, and eminent domain.
In addition, state, local and federal governments also seek to regulate the type, quantity and method of use of chemicals and materials for growing crops, including fertilizers, pesticides and nutrient rich materials. Such regulations could include restricting or preventing the use of such chemicals and materials near residential housing or near water sources. Further, some regulations have strictly forbidden or significantly limited the use of certain chemicals and materials. Licenses, permits and approvals must be obtained from governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. Reports on the usage of such chemicals and materials must be submitted pursuant to applicable laws, ordinances, and regulations and the terms of the specific licenses, permits and approvals. Failure to comply with laws, ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment.
As an owner of the properties, we may be liable or responsible for the actions or inactions of our tenants with respect to these laws, regulations and ordinances.
The Company has purchased the following domain names (pursuant to the Purchase Agreement): www.standardcanna.com www.standardcultivation.com www.standardgrow.com Cannabis Related Operations
In addition to our real estate plans, we are actively pursuing investment
opportunities with either financing or using our stock or currency in the
rapidly growing cannabis industry in
How We Intend to Generate Revenue
Cannabis
We intend to generate revenue by owning and leasing specialized real estate to cannabis growers in compliance with state and local laws. As such, we intend to actively locate the best opportunities for real property acquisitions in the cannabis industry. With the assistance of our consultants, cannabis industry experts, we have developed specific criteria in terms of the suitability of existing structures as well as plans for new constructions projects. The criteria is centered around the needs of cannabis growers which will be our tenants which we will charge rent. It is anticipated that each property will be remodeled, in the case of existing structures; and designed, in the case of new construction, to contain numerous independent growers. The purchase of specialized cannabis properties, however, will also entail researching industrial zoned real estate where we believe state and local law now permits, or in the future may permit, the legal cultivation of cannabis. We do not grow, harvest, cultivate, possess, distribute or sell cannabis. However, because we may act as landlord to tenants who do directly engage in the cultivation, distribution and sale of cannabis, we plan to exercise appropriate and reasonable care to screen our tenants and verify that our tenants are in compliance with the state and local rules.
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We are mindful of the risks involved in leasing property to those involved in
the cannabis industry. While we do not intend to harvest, cultivate, possess,
distribute or sell cannabis, by leasing facilities to growers of marijuana, we
could be deemed to be participating in marijuana cultivation or aiding and
abetting, which remains illegal under federal law, and exposes us to potential
criminal liability, with the additional risk that our properties could be
subject to civil forfeiture proceedings. In addition, because the scrutiny
FinCEN placed on financial institutions, it may be difficult for tenants to
acquire and maintain bank accounts. This could greatly interfere with our
business operations. We may also experience adverse tax consequences should it
be determined that our income is subject to Section 280E of the
Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping, customer service and billing. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.
Comparison of Year Ended
Results of Operations
For the year ended
Total operating expenses were
Interest expense costs were
Liquidity and Capital Resources
As of this date, the Company has not started generating revenues from operations and has financed its operations primarily through the issuance of capital stock by way of convertible loans from third party and related party loans.
The Company's objectives when managing its liquidity and capital resources are
to generate sufficient cash to fund the Company's operating and working capital
requirements. The Company reported working capital deficit of
Net cash and cash equivalents on hand were zero as at
Operating Activities:
For the year ended
Investing and Financing Activities:
Net cash flows provided by investing and financing activities was
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The Company needs to raise additional capital to fund its operations and development and expansion plans for the next twelve months. Although the Company has previously been successful in raising the funds required for its operations, there can be no assurance that the Company will have sufficient financing to meet its capital requirements or that additional financing will be available on terms acceptable to the Company in the future.
Liquidity and Capital Resource Measures:
The Company's primary source of liquidity has been from convertible loans and third party and related party loans.
Loans and Credit Facilities:
1. A term loan with a balance of $108,196 which bears interest at 8% per
annum, maturing June 30, 2022 and convertible to common stock at the
lesser of: (i) a 50% discount to market; and (ii) $0.01 per share.
2. A term loan payable to an officer of $6,525 which is unsecured, bearing
interest at 7% per annum, maturing June 30, 2022 .
Transaction with Related Parties:
NONE Critical Accounting Policies
The Commission has defined a company's critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies that are significant to understanding our results.
The following are deemed to be the most significant accounting policies affecting us.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.
Use of Estimates
The preparation of these financial statements in accordance with accounting
principles generally accepted in
Income Taxes
We account for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on our balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. We must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. Changes in our valuation allowance in a period are recorded through the income tax provision on the statement of operations.
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From the date of our inception, we adopted ASC 740-10-30. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, we recognized no material adjustment in the liability for unrecognized income tax benefits.
Intangible Assets
Acquired intangible assets other than goodwill are amortized over their useful lives unless the lives are determined to be indefinite. Acquired intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination or received in a nonmonetary exchange, the estimated fair values of the assets received (or, for non-monetary exchanges, the estimated fair values of the assets transferred if more clearly evident) are used to establish the cost basis, except when neither of the values of the assets received or the assets transferred in non-monetary exchanges are determinable within reasonable limits. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. Amortization of finite-lived intangible assets is computed over the useful lives of the respective assets.
Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.
Off-Balance Sheet Arrangements
As of
? a retained or contingent interest in assets transferred to the
unconsolidated entity or similar arrangement that serves as credit;
? liquidity or market risk support to such entity for such assets;
? an obligation, including a contingent obligation, under a contract that
would be accounted for as a derivative instrument; or
? an obligation, including a contingent obligation, arising out of a
variable interest in an unconsolidated entity that is held by, and
material to us, where such entity provides financing, liquidity, market
risk or credit risk support to or engages in leasing, hedging, or research
and development services with us.
Inflation and Changing Prices
We do not believe that inflation nor changing prices for the year ended
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