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 April 30, 2021

 

☐     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: 000-55994

 

THC THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

26-0164981

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification Number)

 

11700 W Charleston Blvd. #73

Las Vegas, NV 89135

(Address of principal executive offices)

 

(833)-420-8428

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Not applicable

 

 

 

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 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 (§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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting 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 Exchange Act). ☐ Yes     ☒ No

 

As of June 11, 2021, the Company had 25,381,564 shares of common stock outstanding. 

 

 

 

 

THC THERAPEUTICS INC.

INDEX

 

 

 

 

Page

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

Consolidated Balance Sheets at April 30, 2021 (unaudited), and July 31, 2020

 

3

 

Consolidated Statement of Operations for the three months ended April 30, 2021, and April 30, 2020 (unaudited)

 

4

 

Consolidated Statement of Stockholders’ Equity (deficit) for the three months and nine months ended April 30, 2021, and April 30, 2020 (unaudited)

 

5

 

Consolidated Statement of Cash Flows for the nine months ended April 30, 2021, and April 30, 2020 (unaudited)

 

7

 

Notes to Financial Statements (unaudited)

 

8

Item 2.

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

 

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

 

27

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

28

Item 1A.

Risk Factors

 

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 3.

Defaults Upon Senior Securities

 

29

Item 4.

Mine Safety Disclosures

 

29

Item 5.

Other Information

 

29

Item 6.

Exhibits

 

30

 

 

 

 

SIGNATURES

 

31

 

 

 
2

Table of Contents

 

THC THERAPEUTICS INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

April 30,

2021

 

 

July 31,

2020

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 40,895

 

 

$ 43,239

 

Prepaid expenses

 

 

18,300

 

 

 

-

 

Total current assets

 

 

59,195

 

 

 

43,239

 

 

 

 

 

 

 

 

 

 

Physical silver assets

 

 

152,785

 

 

 

-

 

Fixed assets, net

 

 

12,496

 

 

 

21,446

 

Intangible assets, net

 

 

17,367

 

 

 

20,661

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

241,843

 

 

 

85,346

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 703,026

 

 

$ 499,249

 

Accrued liabilities due to related parties

 

 

17,131

 

 

 

8,474

 

Advances from related parties

 

 

104,935

 

 

 

83,660

 

Convertible notes payable, net

 

 

386,719

 

 

 

305,110

 

Convertible notes payable- related party, net

 

 

199,726

 

 

 

124,931

 

Derivative liability

 

 

689,727

 

 

 

842,573

 

Total current liabilities

 

 

2,101,264

 

 

 

1,863,997

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

2,101,264

 

 

 

1,863,997

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

 

 

Common stock; $0.001 par value; 500,000,000 shares authorized; 24,177,860 and 21,461,784 shares issued and outstanding as of April 30, 2021 and July 31, 2020, respectively

 

 

24,178

 

 

 

21,462

 

Preferred stock; $0.001 par value; 10,000,000 shares authorized; 218,000 and 218,000 series A and B shares issued and outstanding  as of April 30, 2021 and July 31, 2020, respectively

 

 

 

 

 

 

 

 

Preferred A stock; $0.001 par value; 3,000,000 shares authorized; 218,000 and 218,000 shares issued and outstanding as of April 30, 2021 and July 31, 2020, respectively

 

 

218

 

 

 

218

 

Preferred B stock; $0.001 par value; 16,500 shares authorized; 0 and 0 shares issued and outstanding as of April 30, 2021 and July 31, 2020, respectively

 

 

-

 

 

 

-

 

Stock payable

 

 

836,752

 

 

 

221,700

 

Stock receivable

 

 

(6,902,000 )

 

 

(6,902,000 )

Additional paid-in capital

 

 

39,608,401

 

 

 

39,506,284

 

Accumulated deficit

 

 

(35,426,970 )

 

 

(34,626,315 )

Total stockholders' deficit

 

 

(1,859,421 )

 

 

(1,778,651 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' deficit

 

$ 241,843

 

 

$ 85,346

 

 

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

 

 
3

Table of Contents

 

THC THERAPEUTICS INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

April 30,

2021

 

 

April 30,

2020

 

 

April 30,

2021

 

 

April 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

 

23,385

 

 

 

76,183

 

 

 

132,906

 

 

 

275,272

 

Consulting fees

 

 

17,978

 

 

 

332,059

 

 

 

161,530

 

 

 

498,563

 

Salaries and wages

 

 

46,937

 

 

 

48,937

 

 

 

149,038

 

 

 

142,812

 

General and administrative

 

 

77,216

 

 

 

49,854

 

 

 

155,746

 

 

 

145,640

 

Depreciation and amortization

 

 

3,992

 

 

 

4,038

 

 

 

12,244

 

 

 

15,988

 

Total operating expenses

 

 

169,508

 

 

 

511,071

 

 

 

611,464

 

 

 

1,078,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(169,508 )

 

 

(511,071 )

 

 

(611,464 )

 

 

(1,078,275 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on derivative liability

 

 

(85,873 )

 

 

(452,897 )

 

 

110,013

 

 

 

(673,148 )

Loss on settlement of debt

 

 

-

 

 

 

(165,000 )

 

 

-

 

 

 

(165,000 )

Interest expense

 

 

(95,399 )

 

 

(131,095 )

 

 

(299,204 )

 

 

(356,152 )

Total other income (expense)

 

 

(181,272 )

 

 

(748,992 )

 

 

(189,191 )

 

 

(1,194,300 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (350,780 )

 

$ (1,260,063 )

 

$ (800,655 )

 

$ (2,272,575 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$ (0.01 )

 

$ (0.09 )

 

$ (0.03 )

 

$ (0.15 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

24,177,860

 

 

 

14,690,164

 

 

 

23,200,766

 

 

 

14,818,198

 

 

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

 

 
4

Table of Contents

 

THC THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

(Unaudited)

 

For the Nine Months Ended April 30, 2021

 

 

 

Preferred

A Stock

 

 

Preferred

B Stock

 

 

Common

Stock

 

 

Additional

Paid-in

 

 

Stock

 

 

Stock

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Payable

 

 

Receivable

 

 

Deficit

 

 

Deficit

 

Balance, July 31, 2020

 

 

218,000

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

21,461,784

 

 

 

21,462

 

 

 

39,506,284

 

 

 

221,700

 

 

 

(6,902,000 )

 

 

(34,626,315 )

 

 

(1,778,651 )

Shares issued for conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

718,908

 

 

 

719

 

 

 

21,281

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(90,050 )

 

 

(90,050 )

Balance, October 31, 2020

 

 

218,000

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

22,180,692

 

 

 

22,181

 

 

 

39,527,565

 

 

 

221,700

 

 

 

(6,902,000 )

 

 

(34,716,365 )

 

 

(1,846,701 )

Shares and warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

108,552

 

 

 

-

 

 

 

-

 

 

 

108,552

 

Cash received for stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

297,500

 

 

 

-

 

 

 

-

 

 

 

297,500

 

Shares issued for conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,997,168

 

 

 

1,997

 

 

 

38,003

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,000

 

Derivative liability written off to additional paid in capital

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42,833

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

42,833

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(359,825 )

 

 

(359,825 )

Balance, January 31, 2021

 

 

218,000

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

24,177,860

 

 

 

24,178

 

 

 

39,608,401

 

 

 

627,752

 

 

 

(6,902,000 )

 

 

(35,076,190 )

 

 

(1,717,641 )

Cash received for stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

209,000

 

 

 

-

 

 

 

-

 

 

 

209,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(350,780 )

 

 

(350,780 )

Balance, April 30, 2021

 

 

218,000

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

24,177,860

 

 

 

24,178

 

 

 

39,608,401

 

 

 

836,752

 

 

 

(6,902,000 )

 

 

(35,426,970 )

 

 

(1,859,421 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
5

 

 

For the Nine Months Ended April 30, 2020

 

 

 

Preferred

A Stock

 

 

Preferred

B Stock

 

 

Common

Stock

 

 

 Additional

Paid-in 

 

 

 Stock

 

 

 Stock

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

 Payable

 

 

 Receivable

 

 

Deficit

 

 

Deficit

 

Balance, July 31, 2019

 

 

217,000

 

 

 

217

 

 

 

-

 

 

 

-

 

 

 

14,434,098

 

 

 

14,434

 

 

 

38,421,610

 

 

 

417,469

 

 

 

(6,902,000 )

 

 

(32,701,136 )

 

 

(749,406 )

Shares and warrants issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

107,661

 

 

 

108

 

 

 

298,712

 

 

 

(296,561 )

 

 

-

 

 

 

-

 

 

 

2,259

 

Conversion of preferred to common Stock

 

 

(1,000 )

 

 

(1 )

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

250

 

 

 

(232 )

 

 

(17 )

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued for conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,080

 

 

 

26

 

 

 

69,438

 

 

 

(59,432 )

 

 

-

 

 

 

-

 

 

 

10,032

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(145,473 )

 

 

(145,473 )

Balance, October 31, 2019

 

 

216,000

 

 

 

216

 

 

 

-

 

 

 

-

 

 

 

14,817,839

 

 

 

14,818

 

 

 

38,789,528

 

 

 

61,459

 

 

 

(6,902,000 )

 

 

(32,846,609 )

 

 

(882,588 )

Shares and warrants for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

110,241

 

 

 

-

 

 

 

-

 

 

 

110,241

 

Rescission of equity grant

 

 

(13,000 )

 

 

(13 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued for conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

204,940

 

 

 

205

 

 

 

39,995

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,200

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(867,039 )

 

 

(867,039 )

Balance, January 31, 2020

 

 

203,000

 

 

 

203

 

 

 

-

 

 

 

-

 

 

 

15,022,779

 

 

 

15,023

 

 

 

38,829,536

 

 

 

171,700

 

 

 

(6,902,000 )

 

 

(33,713,648 )

 

 

(1,599,186 )

Shares and warrants for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

500,000

 

 

 

500

 

 

 

39,500

 

 

 

20,000

 

 

 

-

 

 

 

-

 

 

 

60,000

 

Issue of warrants  in accordance with antidilution provisions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

265,935

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

265,935

 

Shares issued for warrant exercise

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,225,000

 

 

 

1,225

 

 

 

(1,225 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued to settle account payable

 

 

15,000

 

 

 

15

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

239,985

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

240,000

 

Shares issued for conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,225,887

 

 

 

2,226

 

 

 

86,542

 

 

 

30,000

 

 

 

-

 

 

 

-

 

 

 

118,768

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,260,063 )

 

 

(1,260,063 )

Balance, April 30, 2020

 

 

218,000

 

 

 

218

 

 

 

-

 

 

 

-

 

 

 

18,973,666

 

 

 

18,974

 

 

 

39,460,273

 

 

 

221,700

 

 

 

(6,902,000 )

 

 

(34,973,711 )

 

 

(2,174,546 )

 

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

 

 
6

Table of Contents

 

THC THERAPEUTICS INC.

CONSOLIDATED STATEMENT OF CASHFLOWS

(Unaudited)

 

 

 

For the Nine Months Ended

 

 

 

April 30,

2021

 

 

April 30,

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$ (800,655 )

 

$ (2,272,575 )

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

 

 

 

 

 

 

 

 

Loss on change in derivative liabilities

 

 

(110,013 )

 

 

660,968

 

Amortization of debt discount

 

 

243,404

 

 

 

310,091

 

Stock based compensation

 

 

108,552

 

 

 

438,435

 

Depreciation and amortization

 

 

12,244

 

 

 

15,988

 

Loss on settlement of accounts payable

 

 

-

 

 

 

165,000

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Increase (decrease) in prepaid assets

 

 

(18,300 )

 

 

140,250

 

Increase (decrease) in accounts payable

 

 

203,777

 

 

 

401,738

 

Increase (decrease) in accounts payable related party

 

 

8,657

 

 

 

(210,090 )

Net cash used in operating activities

 

 

(352,334 )

 

 

(350,195 )

 

 

 

 

 

 

 

 

 

Cash Flows from investing

 

 

 

 

 

 

 

 

Purchase of silver

 

 

(152,785 )

 

 

(168,453 )

Net cash used in investing activities

 

 

(152,785 )

 

 

(168,453 )

 

 

 

 

 

 

 

 

 

Cash Flows provided by Financing Activities

 

 

 

 

 

 

 

 

Proceeds from related party advances

 

 

82,587

 

 

 

24,930

 

Payments on related party advances

 

 

(61,312 )

 

 

(57,452 )

Proceeds from sale of common stock

 

 

506,500

 

 

 

-

 

Proceeds from convertible notes payable

 

 

-

 

 

 

288,014

 

Repayments of convertible notes payable

 

 

(25,000 )

 

 

(37,500 )

Net cash provided by financing activities

 

 

502,775

 

 

 

217,992

 

 

 

 

 

 

 

 

 

 

Net decrease in Cash

 

 

(2,344 )

 

 

(300,656 )

 

 

 

 

 

 

 

 

 

Beginning cash balance

 

 

43,239

 

 

 

317,551

 

 

 

 

 

 

 

 

 

 

Ending cash balance

 

$ 40,895

 

 

$ 16,895

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for tax

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Derivative Liability written off to additional paid in capital

 

$ 42,833

 

 

$ -

 

Shares issued for the conversion of debt

 

$ 62,000

 

 

$ -

 

 

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

  

 
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THC THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS AND HISTORY

 

Description of business – THC Therapeutics, Inc. (referred to as the “Company”) is focused developing its patented product, the dHydronator®, a sanitizing herb dryer. The main function of the dHydronator is to greatly accelerate the drying time of a herb while sanitizing it. The dHydronator can be used to dry a variety of herbs, but it has been specifically tested for use with cannabis, and it can reduce the drying time for cannabis from 10-14 days to less than 14 hours.

 

History – The Company was incorporated in the State of Nevada on May 1, 2007, as Fairytale Ventures, Inc., and later changed its name to Aviation Surveillance Systems, Inc. and Harmonic Energy, Inc. On January 23, 2017, the Company changed its name to THC Therapeutics, Inc.

 

On May 30, 2017, the Company formed Genesis Float Spa LLC, a wholly-owned subsidiary, to market its float spa assets purchased for wellness centers. The Company’s health spa plans are part of the Company’s strategic focus on revenue generation and creating shareholder value.

 

On January 17, 2018, the Company changed its name to Millennium Blockchain Inc.

 

On September 28, 2018, the Company changed its name back to THC Therapeutics, Inc.

 

THC Therapeutics, Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”

 

2. BASIS OF PRESENTATION AND GOING CONCERN

 

Basis of Presentation and Principles of Consolidation – The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Audited Financial Statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent Annual Audited Financial Statements have been omitted.

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

Going Concern – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

 

Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues to provide sufficient cash flows to enable the Company to finance its operations internally. As of April 30, 2021, the Company had $40,895 cash on hand. At April 30, 2021 the Company has an accumulated deficit of $35,426,970. For the nine months ended April 30, 2021 the Company had a net loss of $800,655, and net cash used in operations of $352,334. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.

 

Over the next twelve months management plans to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should the Company be unable to continue existence.

 

 
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3. SUMMARY OF SIGNIFICANT POLICIES

 

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in 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.

 

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There were $40,895 and $43,239 in cash and no cash equivalents as of April 30, 2021 and July 31, 2020, respectively.

 

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of April 30, 2021 , the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

Revenue Recognition

We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

 

The company has made an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by governmental authorities that are collected by the company from its customers (sales and use taxes, value added taxes, some excise taxes).

 

Revenues from the sale of products are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered.

 

Fair Value of Financial Instruments

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

 
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The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of April 30, 2021:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Physical Silver Assets

 

$ 152,785

 

 

$ -

 

 

$ -

 

 

$ -

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments

 

$ -

 

 

$ -

 

 

$ 689,727

 

 

$ 689,727

 

 

As of April 30, 2021, the Company’s stock price was $0.28, risk-free discount rate of 0.01% and volatility of 234.84%.

 

The following tables provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for the three months ended April 30, 2021:

 

 

 

Amount

 

Balance January 31, 2021

 

$ 603,854

 

Derivative reclassed to additional paid in capital

 

 

-

 

Change in fair market value of derivative liabilities

 

 

85,873

 

Balance April 30, 2021

 

$ 689,727

 

 

fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for the nine months ended April 30, 2021.

 

 

 

Amount

 

Balance July 31, 2020

 

$ 842,573

 

Derivative reclassed to additional paid in capital

 

 

(42,833 )

Change in fair market value of derivative liabilities

 

 

(110,013 )

Balance April 30, 2021

 

$ 689,727

 

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below as of July 31, 2020:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial Instruments

 

$ -

 

 

$ -

 

 

$ 842,573

 

 

$ 842,573

 

 

As of July 31, 2020, the Company’s stock price was $0.07, risk-free discount rate of 0.11% and volatility of 240.18%.

 

 
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Goodwill and Intangible Assets

The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “Intangibles – Goodwill and Other.” According to this statement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

 

Long-Lived Assets

In accordance with the Financial Accounting Standards Board (“FASB”) Accounts Standard Codification (ASC) ASC 360-10, “Property, Plant and Equipment,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three months ending April 30, 2021 and 2020 the Company recorded an impairment expense of $0 and $0, respectively.

 

Income Taxes

The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using 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 the enactment date.

 

Stock-Based Compensation

The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

 

Earnings (Loss) Per Share

The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “Earnings Per Share.” Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.

 

Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expenses of $27,833 and $53,093 during the nine months ended April 30, 2021 and 2020, respectively.

 

4. PHYSICAL SILVER ASSETS

 

During the nine months ending April 2021, the Company purchased silver bars and coins for $152,785. We determine the fair value of our silver on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is its principal market for silver (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our silver assets are impaired. In determining if an impairment has occurred, we consider the lowest market price of silver quoted on the active exchange since acquiring the silver. If the then current carrying value of a silver exceeds the fair value so determined, an impairment loss has occurred with respect to those silver assets in the amount equal to the difference between their carrying values and the price determined.

 

 
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5. FIXED ASSETS

 

Fixed assets consist of the following as of April 30, 2021 and July 31, 2020:

 

 

 

April 30,

2021

 

 

July 31,

2020

 

dHydronator prototype

 

$ 27,100

 

 

$ 27,100

 

Float Spa and associated equipment

 

 

60,000

 

 

 

60,000

 

Office furniture and equipment

 

 

532

 

 

 

532

 

Less: accumulated depreciation

 

 

(75,136 )

 

 

(66,186 )

Fixed assets, net

 

$ 12,496

 

 

$ 21,446

 

 

Depreciation expense for the three and nine months ended April 30, 2021 was $3,992 and $8,950, respectively. Depreciation expense for the three and nine months ended April 30, 2020, was $2,951 and $12,681, respectively.

 

6. INTANGIBLE ASSETS

 

Intangible assets consist of the following as of April 30, 2021 and July 31, 2020:

 

 

 

April 30,

2021

 

 

July 31,

2020

 

Patents and patents pending

 

$ 19,699

 

 

$ 19,699

 

Trademarks

 

 

1,275

 

 

 

1,275

 

Website and domain names

 

 

15,098

 

 

 

15,098

 

Less: accumulated depreciation

 

 

(18,705 )

 

 

(15,411 )

Intangible assets, net

 

$ 17,367

 

 

$ 20,661

 

 

Amortization expense for the three and nine months ended April 30, 2021, was $1,074 and $3,294, respectively.

 

Amortization expense for the three and nine months ended April 30, 2020, was $1,087 and $3,307, respectively.

 

7. RELATED PARTY TRANSACTIONS

 

ADVANCES FROM RELATED PARTIES

 

Our Chief Executive Officer and Harvey Romanek, father of our Chief Executive Officer, previously agreed to advance funds to the Company from time to time to support the ongoing operations of the Company. Advances are due within ten days of demand and bear interest at 5% annually.

 

Advances from related parties consist of the following as of April 30, 2021:

 

 

 

Principal as of

 

 

Three Months ending

April 30, 2021

 

 

Principal as of

 

 

Accrued

interest balance

As of

 

 

 

July 31,

2020

 

 

Funds

advanced

 

 

Funds

repaid

 

 

April 30,

2021

 

 

April 30,

2021

 

B. Romanek, President and CEO

 

$ 13,267

 

 

$ 90,521

 

 

$ (69,246 )

 

$ 34,542

 

 

$ 6,076

 

Shareholder Relative of our President and CEO

 

 

70,393

 

 

 

-

 

 

 

-

 

 

 

70,393

 

 

 

11,055

 

TOTAL

 

$ 83,660

 

 

$ 90,521

 

 

$ (69,246 )

 

$ 104,935

 

 

$ 17,131

 

 

 
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On November 1, 2017, we entered into an employment agreement with Brandon Romanek, our Chief Executive Officer. In accordance with this agreement, Mr. Romanek provides services to the Company in exchange for $78,000 per year plus vacation and bonuses as approved annually by the board of directors, as well as reimbursement of expenses incurred. On February 1, 2019, we amended the employment agreement with Brandon Romanek, our Chief Executive Officer. In accordance with this agreement, Mr. Romanek provides services to the Company in exchange for $178,000 per year plus vacation and bonuses as approved annually by the board of directors, as well as reimbursement of expenses incurred.

 

During the nine months ending April 30, 2021, the Company accrued $46,937 due to Mr. Romanek related to this agreement. As of April 30, 2021, Mr. Romanek has allowed the Company to defer a total of $438,498 in compensation earned to date related to his employment agreements.

 

On June 15, 2019, the Company entered into an employment agreement with Joshua Halford, a business development analyst for the Company, under the agreement Mr. Halford earns (i) $3,000 in compensation every other week, payable at the Company’s election in cash or in the form of common stock registered with the SEC on Form S-8 with a 50% bonus for stock issuances made in lieu of cash payments at the time of issuance (for example, if the Company filed a registration statement on Form S-8 in the future, the Company could elect to pay Mr. Halford the $3,000 biweekly payment by issuing Mr. Halford $4,500 of S-8 registered Company common stock at the then-current common stock price instead of making a $3,000 cash payment to Mr. Halford), and (ii) 10% sales commissions. On February 18, 2020 the employment agreement was amended to $1,000 in compensation every other week to be paid in cash. During the nine months ended April 30, 2021 Mr. Halford earned $16,000.

 

CONVERTIBLE NOTES PAYABLE RELATED PARTY

 

On May 1, 2019, we entered into a convertible promissory note pursuant to which we borrowed $200,000 from Harvey Romanek, the father of the Company’s Chief Executive Officer, Brandon Romanek. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on May 1, 2021. The note is convertible six months after the issuance date at the noteholder’s option into shares of our common stock at a Variable Conversion Price of 65% multiplied by the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.

 

The Company recorded a debt discount in the amount of $200,000 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $74,795 during the nine months April 30, 2021.

 

Further, the Company recognized a derivative liability of $387,232 and an initial loss of $187,232 based on the Black-Scholes pricing model.

 

As of January 31, 2020, convertible notes due to related parties net of unamortized debt discounts of $274, was $199,726.

 

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

The Black-Scholes model, adopted by management as an appropriate financial model, utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note through April 30, 2021:

 

Risk free interest rate

 

0.07% - 0.13

%

Expected term (years)

 

0.24 - 0.49

 

Expected volatility

 

236% - 283

 

Expected dividends

 

 

0 %

 

 
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8. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:

 

 

 

April 30,

 

 

July 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

On April 4, 2019, we entered into a master convertible promissory note pursuant to which we may borrow up to $250,000 in $50,000 tranches.

 

On April 19, 2019, we borrowed the first tranche of $50,000, net of debt issuance costs and investor legal fees of $7,000, resulting in the Company receiving $43,000.

  

On June 19, 2019, we borrowed the second tranche of $50,000, net of debt issuance costs and investor legal fees of $7,000, resulting in the Company receiving $43,000.

 

On January 27, 2020, we borrowed the third tranche of $35,000, net of debt issuance costs and investor legal fees of $7,000, resulting in the Company receiving $30,500.

 

On January 31, 2019, the lender converted $9,532 of principle and $500 of fees into 16,500 shares of common stock.

 

On December 12, 2020, the lender converted $9,700 of principle and $500 of fees into 34,000 shares of common stock.

 

On February 10, 2020, the lender converted $10,156 of principle and $500 of fees into 120,000 shares of common stock.

 

On March 24, 2020, the lender converted $7,628 of principle and $500 of fees into 160,000 shares of common stock.

 

On April 13, 2020, the lender converted $7,900 of principle and $500 of fees into 300,000 shares of common stock.

 

On April 28, 2020, the lender converted $5,084 of principle, $500 of fees, and $5,000 of interest into 588,000 shares of common stock.

 

On May 26, 2020, the lender converted $13,000 of principle, and $500 of fees into 750,000 shares of common stock.

 

Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on April 4, 2020. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price equal to the lesser of (i) the lowest Trading Price during the previous twenty-five (25) Trading Day period ending on the latest complete Trading Day prior to the date of this Note or (ii) Variable Conversion Price of 60% multiplied by the lowest Trading Price for the Common Stock during the twenty-five (25) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.

 

The Company recorded debt discounts in the amount of $135,000 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of each tranche of the Note to be amortized utilizing the effective interest method of accretion over the term of each tranche of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $17,270 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $465,748 and an initial loss of $335,248 based on the Black-Scholes pricing model. During the three months ended January 31, 2020, the Company recorded a gain on derivative liability of $41,851.

 

 

72,000

 

 

 

72,000

 

Unamortized debt discount

 

 

-

 

 

 

(17,260 )

Total, net of unamortized discount

 

 

72,000

 

 

 

54,740

 

 

 

 

 

 

 

 

 

 

On June 20, 2019, we entered into a convertible promissory note pursuant to which we borrowed $291,108, net of an Original Issue Discount (“OID”) of $36,108 and investor legal expenses of $5,000 resulting in the Company receiving $250,000.

 

On January 31, 2019, the lender converted $30,000 of principle into 170,940 shares of common stock.

 

On March 27, 2020, the lender converted $30,000 of principle into 267,016 shares of common stock.

 

On April 23, 2020, the lender converted $21,000 of principle into 210,108 shares of common stock.

 

On April 23, 2020, the lender converted $30,000 of principle into 1,129,816 shares of common stock

 

On May 28, 2020, the lender converted $35,000 of principle into 1,318,118 shares of common stock

 

Interest under the convertible promissory note is 8% per annum, and the principal and all accrued but unpaid interest is due on June 20, 2020. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a conversion price equal to $8.80 (the “Lender Conversion Price”). Additionally, after 6 months from the date the Company receives note funding, the noteholder has the right to demand whole or partial redemption of amounts owed to the noteholder under the note. Payments of redemption amounts by the Company to the noteholder can be made in cash or by converting the redemption amount into shares common stock of the Company, with such conversions occurring at the lower of (i) the Lender Conversion Price, or (ii) a price equal to the 65% of the two lowest Closing Trade Prices during the ten (10) Trading Day period immediately preceding the measurement date.

 

The Company recorded a debt discount in the amount of $182,499 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $0 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $141,391 and an initial loss of $0 based on the Black-Scholes pricing model.

 

 

145,108

 

 

 

145,108

 

 

 
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Unamortized debt discount

 

 

-

 

 

 

-

 

Total, net of unamortized discount

 

 

145,108

 

 

 

145,108

 

On February 20, 2020, we entered into a convertible promissory note pursuant to which we borrowed $135,680, net of an Original Issue Discount (“OID”) of $7,680 and investor legal expenses of $2,500 resulting in the Company receiving $125,500.

 

On September 2, 2020, the lender converted $10,000 of principle into 242,718 shares of common stock

 

On September 30, 2020, the lender converted $12,000 of principle into 476,190 shares of common stock

 

On November 14, 2020, the lender converted $20,000 of principle into 938,967 shares of common stock.

 

On December 1, 2020, the lender converted $20,000 of principle into 1,058,201 shares of common stock.

 

The fair value of the derivative liability associated with the conversions for the nine months ended April 30, 2021 on the date of settlement of $16,244 was recorded to additional paid in capital.

 

Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on August 15, 2021. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a conversion price equal to 71% of the average of the 2 lowest trading prices of the common stock during the 10 completed trading days prior to conversion date.

 

The Company recorded a debt discount in the amount of $135,680 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $22,778 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $192,236 and an initial loss of $64,236 based on the Black-Scholes pricing model.

 

 

73,680

 

 

 

135,680

 

Unamortized debt discount

 

 

(26,493 )

 

 

(94,085 )

Total, net of unamortized discount

 

 

47,187

 

 

 

41,595

 

On March 26, 2020, we entered into a convertible promissory note pursuant to which we borrowed $3,000, net of legal expenses of $3,000 resulting in the Company receiving $0.

 

Interest under the convertible promissory note is 0% per annum, and the principal and all accrued but unpaid interest is due on March 26, 2021. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a conversion price equal to the average of the closing trading prices of the common stock during the 3 completed trading days prior to conversion date.

 

The Company recorded a debt discount in the amount of $3,000 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $1,956.16 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $1,500 and an initial loss of $1,500 based on the Black-Scholes pricing model.

 

 

3,000

 

 

 

3,000

 

Unamortized debt discount

 

(-)

 

 

 

(1,956 )

Total, net of unamortized discount

 

 

3,000

 

 

 

1,044

 

On May 1, 2020, we entered into a convertible promissory note pursuant to which we borrowed $100,000, net of consulting expenses of $100,000 resulting in the Company receiving $0. During the nine months ended April 30, 2021, the Company made cash payments of $25,000.

 

Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on May 1, 2021. The note is convertible at any date after the effective date at the noteholder’s option into shares of our common stock at a conversion price equal to 65% of the average of the three lowest closing prices in the 10 trading days prior to the conversion.

 

The Company recorded a debt discount in the amount of $64,888 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $32,523 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $64,888 based on the Black-Scholes pricing model.

 

 

75,000

 

 

 

100,000

 

Unamortized debt discount

 

 

(177 )

 

 

(48,710 )

Total, net of unamortized discount

 

 

74,823

 

 

 

51,290

 

 

 
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On May 7, 2020, we entered into a convertible promissory note pursuant to which we borrowed $66,780, net of an Original Issue Discount (“OID”) of $3,780 and investor legal expenses of $3,000 resulting in the Company receiving $60,000.

 

Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on October 29, 2021. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a conversion price equal to 71% of the average of the 2 lowest trading prices of the common stock during the 10 completed trading days prior to conversion date.

 

The Company recorded a debt discount in the amount of $66,780 in connection with the original issuance discount, offering costs and initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $22,422 during the nine months ended April 30, 2021.

 

Further, the Company recognized a derivative liability of $138,172 and an initial loss of $75,172 based on the Black-Scholes pricing model.

 

 

66,780

 

 

 

66,780

 

Unamortized debt discount

 

 

(22,179 )

 

 

(55,447 )

 

 

 

44,601

 

 

 

11,333

 

Total, net of unamortized discount

 

$ 386,719

 

 

$ 305,110

 

 

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

The Black-Scholes model, adopted by management as an appropriate financial model, utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note through April 30, 2021:

 

Risk free interest rate

 

0.07% - 0.13

Expected term (years)

 

0.24 - 0.49

 

Expected volatility

 

236% - 283

 

Expected dividends

 

 

0 %

 

9. STOCK WARRANTS

 

The following is a summary of warrant activity during the nine months ended April 30, 2021.

 

 

 

Number of

Shares

 

 

Weighted Average Exercise Price

 

Balance, July 31, 2020

 

 

922,129

 

 

$ 16.73

 

Warrants granted and assumed

 

 

-

 

 

 

-

 

Warrants expired

 

 

(56,750 )

 

 

(.05 )

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

Balance outstanding and exercisable, April 30, 2021

 

 

865,379

 

 

$ 16.21

 

 

The following is a summary of warrant activity during the nine months ended April 30, 2020:

 

 

 

Number of

Shares

 

 

Weighted Average Exercise Price

 

Balance, July 31, 2019

 

 

1,506,250

 

 

$ 10.34

 

Warrants granted and assumed

 

 

1,531,311

 

 

 

0.088

 

Warrants expired

 

 

-

 

 

 

-

 

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

(1,247,190 )

 

 

0.088

 

Balance outstanding and exercisable, April 30, 2020

 

 

1,790,371

 

 

$ 8.72

 

 

 
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Table of Contents

 

10. SHAREHOLDERS’ DEFICIT

 

Overview

 

The Company’s authorized capital stock consists of 500,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock.

 

As of April 30, 2021 and July 31, 2020, the Company had 24,177,860 and 21,461,784 shares of common stock issued and outstanding, respectively.

 

As of April 30, 2021 and July 31, 2020, the Company had 218,000 and 218,000 shares of Series A Preferred Stock issued and outstanding, respectively.

 

As of April 30, 2021 and July 31, 2020, the Company had 0 and 0 shares of Series B Preferred Stock issued and outstanding, respectively.

 

Series A Preferred Stock

 

On January 24, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series A Preferred Stock,” consisting of three million (3,000,000) shares, par value $0.001.

 

Under the Certificate of Designation, holders of the Series A Preferred Stock are entitled at their option to convert their preferred shares into common stock at a conversion rate of one hundred (100) shares of common stock for every one (1) share of Series A Preferred Stock. The holders are further entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. The holders are entitled to equal rights with our common stockholders as it relates to liquidation preference.

 

Series B Preferred Stock

 

On May 12, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series B Preferred Stock,” consisting of up to one hundred twenty thousand (120,000) shares, par value $0.001. On June 5, 2017, the Company amended the designation to increase the number of shares of Series B Preferred Stock to one hundred sixty-five thousand (165,000) shares, par value $0.001.

 

Under the Certificate of Designation, as amended, holders of Series B Preferred Stock are entitled to a liquidation preference on the stated value of $10.00 per share. The shares carry a mandatory conversion provision, and all shares of Series B Preferred Stock will be redeemed by the Company one year from issuance, at a variable conversion rate equal to the stated price of $10.00 divided by the prior day’s closing price as quoted on OTC Markets. Holders of Series B Preferred Stock are not entitled to any voting or dividend rights.

 

As of April 30, 2021, all shares of Series B Preferred Stock eligible for mandatory conversion have been converted into common stock.

 

 
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Issuances of Common and Preferred Stock for the nine months ended April 30, 2020

 

On September 2, 2020, a convertible note holder converted $10,000 in principal and fees into 242,718 shares of common stock at a conversion price of $0.0412 per share.

 

On September 30, 2020, a convertible note holder converted $12,000 in principal and fees into 476,190 shares of common stock at a conversion price of $0.0252 per share.

 

During the nine months ended April 30, 2021, 720,000 shares were to be issued for services valued at $108,552. As of April 30, 2021, the shares were not issued, and the value was included in stock payable.

 

During the nine months ended April 30, 2021, the Company issued 1,997,168 shares of common stock valued at $40,000 for the conversion of certain convertible notes.

 

During the nine months ended April 30, 2021, the Company received $506,500 for the issuance of 8,530,002 shares of common stock. As of April 30, 2021, the shares were not issued, and the value was included in stock payable.

 

11. SUBSEQUENT EVENTS

 

On June 3, 2021 a convertible note holder converted $19,500 in principal into 1,203,704 shares of common stock at a conversion price of $0.0162 per share.

 

 
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Table of Contents

 

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

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements and summary of selected financial data for THC Therapeutics, Inc. Such discussion represents only the best present assessment from our Management.

 

Overview

 

THC Therapeutics, Inc. (the “Company”), was incorporated in the State of Nevada on May 1, 2007, as Fairytale Ventures, Inc., and later changed its name to Aviation Surveillance Systems, Inc. and Harmonic Energy, Inc. On January 23, 2017, the Company changed its name to THC Therapeutics, Inc. THC Therapeutics, Inc., together with its subsidiaries, is collectively referred to herein as the “Company,” and “THC Therapeutics.”

 

The Company is focused on developing a sanitizing herb dryer, the dHydronator®, which has been specifically designed for the drying and sanitizing (i.e., reducing the bacterial count) of freshly harvested cannabis, and other herbs, flowers, and tea leaves.

 

Corporate History

 

THC Therapeutics, Inc., was incorporated in the State of Nevada on May 1, 2007, as Fairytale Ventures, Inc., and later changed its name to Aviation Surveillance Systems, Inc. and Harmonic Energy, Inc. On January 23, 2017, the Company changed its name to THC Therapeutics, Inc. On May 30, 2017, the Company formed Genesis Float Spa LLC, a wholly-owned subsidiary, to market its float spa assets purchased for wellness centers. On January 17, 2018, the Company changed its name to Millennium BlockChain Inc. On September 28, 2018, the Company changed its name back to THC Therapeutics, Inc.

 

The Company’s fiscal year end is July 31st, its telephone number is (702) 602-8422, and the address of its principal executive office is 11700 W Charleston Blvd. #73, Las Vegas, Nevada, 89135.

 

Description of Business

 

The Company is focused on operations in the wellness industry. The Company is developing a sanitizing herb dryer, the dHydronator®, with multiple design, function, and usage patents. This innovative, laboratory-proven product is specifically designed for the drying and sanitizing (i.e., reducing the bacterial count by using ultraviolet light) of freshly harvested cannabis, and other herbs, flowers, and tea leaves. The dHydronator® can reduce moisture content of cannabis to 10-15% in only 10-14 hours. Traditional herbal drying times can take up to two weeks. Additionally, after the Company has launched the dHydronator®, and depending on available funding, the Company intends to establish a float spa facility that will allow each guest to customize their wellness experience, at their own pace, based on their individual needs.

 

Wellness Operations

 

THC Therapeutics is focused on the wellness industry, with plans to develop a patented herb dryer as well as an innovative float spa facility in Las Vegas, Nevada, or southern California.

 

The Company is developing a sanitizing herb dryer, the dHydronator®, with multiple design, function, and usage patents. This innovative, laboratory-proven1 product is specifically designed for the drying and sanitizing (i.e., reducing the bacterial count by using ultraviolet light) of freshly harvested cannabis, and other herbs, flowers, and tea leaves. The dHydronator® can reduce moisture content of cannabis to 10-15% in only 10-14 hours. Traditional herbal drying times can take up to two weeks. The dHydronator® can also significantly reduce the bacterial count of the cannabis during the drying process, but it will not eliminate all bacteria from the cannabis or other plant materials.

 

 
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Table of Contents

 

The Company has a functioning prototype of the dHydronator® similar in design to that shown below, which is now protected by a patent with the United States Patent and Trademark Office (see “Patent, Trademark, License & Franchise Restrictions and Contractual Obligations & Concessions” below), and once the Company has sufficient funds available, the Company plans to source parts for serial manufacturing and negotiate and secure serial manufacturing and assembly. The Company also plans to hire sales and marketing staff as funds are available.

 

 

1 Tests were conducted in 2016-2017 by independent cannabis-testing labs: first by CannLabs on the first-generation dHydronator® prototype, and later by Digipath Labs on the second-generation prototype. Optimal cannabis moisture content is 8-12%. The initial testing by CannLabs showed that (i) moisture content across five wet cannabis samples was reduced to an average moisture content of 13.81% with a standard deviation of 4.04% after 12 hours of drying, and 8.86% with a standard deviation of 2.25% after 16 hours of drying, and (ii) after autoclaving cannabis flowers to ensure sterility and then spiking multiple samples with 100 CFU of E. Coli and Salmonella bacteria and Aspergillus niger mold, testing for the presence of the bacteria and mold by both quantitative polymerase chain reaction (qPCR) and traditional plating methods, which testing concluded that the dHydronator® prototype eliminated or reduced the bacteria and mold contamination, but did not quantify the results. The subsequent testing by Digipath Labs on the second-generation prototype covered multiple strains and independent tests to confirm the prior findings. The strains tested were Lucy Diamond, Cotton Candy, Blue Dream, Kings Cut, Pot of Gold and Diablo. The optimal drying time was determined to be 10-14 hours in the first test. The Company’s proprietary sanitizing technology brought the failing TAC (total aerobic count) from over 300,000 CFU/g down to 78,000 CFU/g (anything less than 100,000 CFU/g is considered “passing”) in the second test. In the third test, after drying 14 hours and 15.5 hours in the dHydronator® and using the Company’s proprietary sanitizing technology for a longer period than required, the moisture content had been reduced from 80% (at 0 hours) to 10.89% (at 14 hours) and 8.83% (at 15.5 hours), the THCA% had been reduced from 21.2% (at 0 hours) to 17.26% (at 14 hours) and 18.26% (at 15.5 hours), and the TAC had been reduced from 210,000 CFU/g (at 0 hours) to 1,500 CFU/g (at 14 hours) and 500 CFU/g (at 15.5 hours). In the fourth experiment, after 12 hours and 15.5 hours of drying in the dHydronator® and using the proprietary sanitizing technology for a longer period than required, the moisture content had reduced from 80% to 12.00% (at 12 hours) and 7.44% (at 15.5 hours), the THCA% had been reduced from 21.2% to 20.08% (at 12 hours) and 19.43% (at 15.5 hours), and the TAC had been reduced from 190,000 CFU/g to 51,000 CFU/g (at 12 hours) and 2,300 CFU/g (at 15.5 hours). After 14 hours of drying, the moisture content had been reduced to 8.15%, the THCA% had been reduced to 19.82%, and the TAC had been reduced to 21,000 CFU/g. In the fifth test, prior moisture and THCA% results were tested, but this time using the Company’s proprietary sanitizing technology for a much shorter time period, using two samples of a different cannabis strain, and testing the expanded cannabinoid profile data of each sample, and after 12 hours of drying two different samples, moisture content for the two samples decreased from 74% and 74% to 9.17% and 9.90%, respectively, and THCA% increased from 14.45% and 14.94% before drying to 16.81% and 17.2%, respectively, after 12 hours of drying. Test six was a test of the same strain as test five but using a different lot of plant material, and moisture content decreased from 81% to 11.5% after 12 hours of drying, while TCHA% increased from 21.28% to 22.6% after 12 hours of drying. The seventh through ninth tests confirmed prior results.

 

More specifically, once we have at least $2,000,000 in in available cash flow or funds from other operations and if we receive the patent, we intend to engage in further development efforts as follows: (i) finalizing case design, with an estimated tooling expense of approximately $300,000-$500,000; manufacturing pre-production units for field testing and presentation to potential partners and distributors, with an estimated expense of $250,000; (iii) hiring a subject-matter expert and consultants or employees in the home herb garden and legal cannabis marketplace to manage the development and sales of herb dryer, with an estimated expense of $400,000 for 12 months; (iv) engaging in further detailed laboratory of our herb drying with respect to cannabis plants and home herb garden plants, with an estimated expense of $50,000 to $100,000 for 12 months; (v) establishing a relationship with a market research and/or marketing company to explore creative strategies, advertising concepts, and consumer opinion, explore applications of our intellectual property in the existing wholesale and retail distribution channels for home herb, garden products and legal cannabis markets, and determine the best path for sales, distribution and licensing of our intellectual property, with an estimated expense of $1,000,000 for 12 months.

 

 
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Table of Contents

 

Additionally, on May 12, 2017, the Company entered into an asset purchase agreement with a third party under which it acquired four (4) float spa units and associated equipment. With the acquisition of these assets, the Company intends to establish a float spa facility that will allow each guest to customize their wellness experience, at their own pace, based on their individual needs. Once we have approximately $500,000-$1,000,000 in available cash flow or funds from other operations, and after the launch of our dHydronator® sanitizing herb dryer, we plan to capitalize on our spa assets purchased in 2017 by (i) leasing a 2,500 to 5,000 square foot facility in Nevada or California, to be built out as needed (and with the size of the facility dependent on available capital); (ii) obtaining necessary licenses and permits, (iii) purchasing inventory, equipment, furnishings and supplies, including inventory, fixtures, furnishings and equipment for an oxygen bar and a Kampuchea, juice and tea Bar, refrigeration and storage equipment, point of sale computers and tablets, digital monitors, signage and display materials, and other suppliers; (iv) hiring spa management personnel including a manager, assistant manager and two spa attendants; (v) hiring marketing and sales consultants, and (vi) launching a marketing campaign to include internet lead services, Groupon and social networking.

 

Competition

 

There are a number of commercial herb dryers sold by competitors, including Yofumo Technologies, which are already commercially available, and which have significant market share. As to our float spa plans, we believe True Rest Float Spa, which has over 20 spa locations across the country, is our primary national competitor, and there are numerous locally owned float spas throughout the country that would considered competitors with our spa operations. There is no assurance that we will be able to compete effectively with any of these competitors.

 

Market Opportunity

 

The Company’s herb dryer, the dHydronator®, safely lowers moisture content and sanitizes without harm to the integrity of the plant. Our test results have been proven to dry cannabis in less than 14 hours verses up to 14 days using traditional drying methods. Test results indicate the removal of many surface germs and bacteria including powder mold, dust mites and spider mites from herbs, plants, the surface of glass or ceramic herbal tea accessories, and any other object that fits safely in the drying chamber. Therefore, we believe that our product will be attractive to the cannabis and home herb and garden product markets.

 

With regard to floatation therapy, the sensory deprivation consumer typically ranges in age from eighteen to eighty. Floatation therapy is a service that is unisex in its appeal and attracts many. As many consumers seek natural alternative therapies for the relief from pain, stress and sleep disorders that affect a significant percentage of the population, we believe that our planned floatation therapy spa facilities will be attractive to these consumers.

 

Marketing Strategy

 

We plan to attend regional cannabis-related trade shows and offer field testing to legal cannabis growers and suppliers in the United States and Canada initially, and throughout the world once the technology has been adopted in the regional market. We also plan to establish a relationship with a market research and marketing company to explore creative strategies, advertising concepts, consumer opinion, existing distribution and sales channels and potential licensing of our intellectual property, to determine the best path for sales and distribution. We also intend to hire subject matter expert consultants or employees in the legal cannabis and home herb marketplace to manage the development and sales of our products. Once our marketing experts identify an herbal or commercial agriculture niche or venue to enter or solicit, we will market to distributors and retailers via trade shows and direct contact.

 

With regard to our spa plans, we intend to launch internet, Groupon and social networking campaigns offering coupons and membership plans for floatation therapy, and our planned oxygen bar and Kampuchea, juice and tea bar. We plan to invite local TV and Radio personalities to tour our facilities, and we plan to offer local healthcare and rehabilitation service providers and non-competitive spa owners and managers a private tour of our spa facilities.

 

Customers

 

Due to the nature of its business and its focus on development of its patent-pending herb dryer, the Company does not currently have any customers.

 

 
21

Table of Contents

 

Patent, Trademark, License & Franchise Restrictions and Contractual Obligations & Concessions

 

The Company has acquired the exclusive intellectual property rights to the dHydronator® sanitizing plant dryer with improved convection flow from the Company’s CEO and Director, Brandon Romanek. Mr. Romanek’s father irrevocably assigned those intellectual property rights to Mr. Romanek in 2016. A trademark application for the mark “dHyrdonator” has been filed (serial no. 86874611), and a patent application was filed with the United States Patent and Trademark Office (“USPTO”), docket number 5503.101 (application nos. 15/467,722 and 62/312,327), for 20 separate herb dryer design, function, and usage patents. On or about July 20, 2018, the Company’s patent counsel received a Notification of Allowance from the USPTO, notifying the Company that the USPTO would be allowing all 20 claims, and on or about November 20, 2018, the USPTO granted the final patent (patent no. 10,132,56), the Company was subsequently notified of the patent grant, and the patent has been recorded with the USPTO as being assigned to the Company.

 

Governmental Regulations

 

We will be governed by government laws and regulations governing spas. We do not believe the dHydronator® will be subject to regulation by the U.S. Food and Drug Administration or any other government agency (other than pursuant to general laws governing truth in advertising or similar laws under the purview of the Federal Trade Commission). We believe that we are currently in compliance with all laws which govern our operations and have no current liabilities thereunder. Our intent is to maintain strict compliance with all relevant laws, rules and regulations.

 

Employees

 

As of April 30, 2021, the Company had two employees.

 

Reports to Security Holders

 

The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by its independent registered public accounting firm and to make available quarterly reports containing unaudited consolidated financial statements for each of the first three quarters of each year. The Company files Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet its timely and continuous disclosure requirements. The Company may also file additional documents with the Commission if those documents become necessary in the course of its operations.

 

The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The site address is www.sec.gov.

 

Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the three months ended April 30, 2021, and related management discussion herein.

 

Our financial statements are stated in U.S. Dollars and are prepared in accordance with generally accepted accounting principles of the United States (“GAAP”).

 

Going Concern Qualification

 

Several conditions and events cast substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred cumulative net losses of $34,716,365 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

 
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Table of Contents

 

For the Three Months Ended April 30, 2021 and 2020:

 

Our operating results for the three months ended April 30, 2021 and 2020, and the changes between those periods for the respective items are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

April 30,

 

 

Change

 

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Operating loss

 

 

$ (169,508 )

 

$ (511,071 )

 

$ (341,563 )

 

(67

%)

Other expense

 

 

$ (181,272 )

 

$ (748,992 )

 

$ 567,720

 

 

(76

%)

Net loss

 

 

$ (350,780 )

 

$ (1,260,063 )

 

$ 909,283

 

 

(58

%)

 

Revenues

 

We did not earn any revenues during the three months ending April 30, 2021 and 2020, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our business strategy and launched sales of our dHydronator® product.

 

Operating Income (Loss)

 

Our loss from operations decreased to $909,283 during the three months ending April 30, 2021, from an operating loss of $31,260,063 in the comparative period ending April 30, 2020. The following table presents operating expenses for the three-month periods ending April 30, 2021 and 2020:

 

 

 

Three months ended

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Professional fees

 

$ 23,385

 

 

$ 76,183

 

 

$ (52,798 )

 

 

(69 )%

Consulting fees

 

 

17,978

 

 

 

332,059

 

 

 

(314,081 )

 

(95

%)

Salaries and wages

 

 

46,937

 

 

 

48,937

 

 

 

(2,000 )

 

(4

%)

General and administrative expenses

 

 

77,216

 

 

 

49,854

 

 

 

27,362

 

 

 

55 %

Depreciation and amortization

 

 

3,992

 

 

 

4,038

 

 

 

(46 )

 

 

(1 )%

Total operating expenses

 

$ 169,508

 

 

$ 511,071

 

 

$ (341,563 )

 

 

(67 )%

 

We realized a decrease of $52,798 in professional fees during the three months ended April 30, 2021, as compared to the three months ended April 30, 2020, primarily due to a decrease in stock-based compensation. We realized a decrease of $314,081 in consulting fees during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to an decrease in consulting services. We realized an increase of $27,362 in general and administrative expenses during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to an increase in travel costs.

 

We realized a decrease of $46 in depreciation expenses during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, due to a decrease in depreciable assets.

 

 
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Other Income (Expense)

 

The following table presents other income and expenses for the three months ended April 30, 2021 and 2020:

 

 

 

Three months ended

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Gain/(loss) on change in derivative liability

 

$ (85,873 )

 

$ (452,897 )

 

$ (367,024 )

 

 

(81

%)

Loss on settlement of debt

 

 

-

 

 

 

(165,000 )

 

 

(165,000 )

 

 

100 %

Interest Expense

 

 

(95,399 )

 

 

(131,095 )

 

 

(35,969 )

 

 

(76

%)

Total other income (expense)

 

$ (181,272 )

 

$ (748,992 )

 

$ (567,720 )

 

 

76

%

 

Gain on change in derivative liability decreased by $367,024 during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, due to change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Loss on settlement of debt decreased from the previous year as a result of no debt settlements occurring during the current period. Interest expense decreased by 35,696 during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, due to a conversion of principal amounts of convertible notes to common stock.

 

Net loss

 

Net loss decreased to $350,780 during the three months ended April 30, 2021, from a net loss of $1,260,063 in the same period in the prior fiscal year due to the factors discussed above.

 

Results of Operations for the nine months ended April 30, 2021, compared with the nine months ended April 30, 2020

 

Our operating results for the nine months ended April 30, 2021 and 2020, and the changes between those periods for the respective items are summarized as follows:

 

 

 

Nine Months Ended

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Operating loss

 

$ (611,464 )

 

$ (1,078,275 )

 

$ (466,811 )

 

 

(43 %)

Other expenses

 

$ (189,191 )

 

$ (1,194,300 )

 

$ (1,005,109 )

 

 

(84 %)

Net loss

 

$ (800,655 )

 

$ (2,272,575 )

 

$ (1,471,920 )

 

 

(65 %)

 

Revenue

 

We did not earn any revenues during the nine months ended April 30, 2021 and 2020, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our business strategy and launched sales of our dHydronator® product.

 

Operating Loss

 

Our loss from operations decreased to $441,956 during the nine months ended April 30, 2021, compared to an operating loss of $567,204 in the comparative period in the prior fiscal year. The following table presents operating expenses for the nine-month periods ended April 30, 2021 and 2020:

 

 

 

Nine months Ended

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Professional fees

 

$ 132,906

 

 

$ 275,272

 

 

$ (142,366 )

 

 

(52 %)

Consulting fees

 

 

161,530

 

 

 

498,563

 

 

 

(337,033 )

 

 

(68 %)

Salaries and wages

 

 

149,038

 

 

 

142,812

 

 

 

6,226

 

 

 

4 %

General and administrative

 

 

155,746

 

 

 

145,640

 

 

 

10,106

 

 

 

7 %

Depreciation and amortization

 

 

12,244

 

 

 

15,988

 

 

 

(3,744 )

 

 

(23 %)

Total operating expenses

 

$ 611,464

 

 

$ 1,078,275

 

 

$ (466,811 )

 

 

(43 %)

 

We realized a decrease of $142,336 in professional fees during the nine months ended April 30, 2021, as compared to the nine months ended April 30, 2020, primarily due to a decrease in stock-based compensation. We realized a decrease of $337,033 in consulting fees during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to a decrease in consulting services. We realized a decrease of $10,106 in general and administrative expenses during the nine months ended April 30, 2021, as compared to the same period the prior fiscal year, primarily due to a decrease in travel costs. We realized a decrease of $3,744 in depreciation expenses during the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, due to a decrease in depreciable assets.

 

 
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Table of Contents

 

Other Income (Expense)

 

The following table presents other income and expenses for the nine months ended April 30, 2021 and 2020:

 

 

 

Nine months ended

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percentage

 

Gain/(loss) on change in derivative liability

 

$ 110,013

 

 

$ (673,148 )

 

$ 783,161

 

 

 

116 %

Loss on settlement of debt

 

 

-

 

 

 

(165,000 )

 

 

165,000

 

 

100%

 

Interest Expense

 

 

(299,204 )

 

 

(356,152 )

 

 

56,948

 

 

 

(16 %)

Total other income (expense)

 

$ (189,191 )

 

$ (1,194,300 )

 

$ 1,005,109

 

 

 

(116 %)

 

Loss on change in derivative liability decreased by $783,161 during the nine months ended April 30, 2021, as compared to the same period in 2019, due to the change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Loss on settlement of debt decreased from the previous year as a result of no debt settlements occurring during the current period. Interest expense decreased by $56,948 during the nine months ended April 30, 2021, as compared to the same period in 2020, due to a conversion of principal amounts of convertible notes to common stock.

 

Net Income loss

 

Net loss decreased to $189,191 during the nine months ended April 30, 2021, from a net loss of $1,194,300 in the same period 2020.

 

Liquidity and Capital Resources

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through sales of our herb dryer and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

Working Capital

 

The following table presents our working capital position as of April 30, 2021, and July 31, 2020:

 

 

 

April 30,

 

 

July 31,

 

 

 

2021

 

 

2020

 

Cash and cash equivalents

 

$ 40,895

 

 

$ 43,239

 

Prepaid expenses

 

 

18,300

 

 

 

-

 

Current assets

 

$ 59,195

 

 

$ 43,239

 

Current liabilities

 

 

2,101,264

 

 

 

1,863,997

 

Working capital

 

$ (2,042,069 )

 

$ (1,820,758 )

 

The change in working capital during the nine months ended April 30, 2021, was primarily due to an increase an increase in current liabilities due to an increase in borrowing from related party parties as well as an increase in accounts payable.

 

 
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Table of Contents

 

Cash Flow

 

We fund our operations with cash received from advances from officer’s and related parties, debt, and issuances of equity.

 

The following tables presents our cash flow for the three months ended April 30, 2021 and 2020:

 

 

 

Three months ended

 

 

 

April 30,

 

 

 

2021

 

 

2020

 

Cash Flows Used in Operating Activities

 

$ (352,334 )

 

$ (350,195 )

Cash Flows Used in Investing Activities

 

 

(152,785 )

 

 

(168,453 )

Cash Flows Provided by Financing Activities

 

 

502,775

 

 

 

217,992

 

Net increase (decrease) in Cash During Period

 

$ (2,344 )

 

$ (300,656 )

 

Cash Flows from Operating Activities

 

We did not generate positive cash flows from operating activities for the three months ended April 30, 2021.

 

For the nine months ended April 30, 2021, net cash flows used in operating activities consisted of a net loss of $800,655, reduced by depreciation of $12,244, amortization of debt discounts of $243,404, and stock-based compensation of $108,552, offset by a gain on change in derivative liabilities of $110,013 and increased by a net increase in change of operating assets and liabilities of $194,134. For the nine months ended April 30, 2020, net cash flows used in operating activities consisted of a net loss of $2,272,575, reduced by depreciation of $15,988, amortization of debt discounts of $310,091, stock-based compensation of $438,435, and a loss on change in derivative liabilities of $660,968 and a loss on settlement of debt of $165,000, and increased by a net increase in change of operating assets and liabilities of $331,898.

 

Cash Flows from Investing Activities

 

For the nine months ended April 30, 2021, consisted of purchases of silver in the amount of $152,785. For the three months ended April 30, 2020, net cashflows used in investing activities consisted of purchases of other assets of $168,453.

 

Cash Flows from Financing Activities

 

For the nine months ended April 30, 2021, we received $82,587 from loans from related parties, and used $61,312 for net repayments on related party loans; we also received $506,500 from the sale of common stock and made a $25,000 payment on a convertible loan. For the three months ended April 30, 2020, we received $288,014 from convertible notes payable and spent $37,500 on repayments, we received $24,930 from loans from related parties and used $57,452 for net repayments on related party debts.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

 
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Table of Contents

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures


The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean the company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’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 Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a simple system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended April 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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Table of Contents

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The Company is not a party to any significant pending legal proceedings other than as disclosed below, and no other such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

 

On or about December 18, 2020, Power Up Lending Group, Ltd. (“Power Up”) filed suit against the Company, the Company’s executive officers, and the Company’s transfer agent (Case Index No. 614700/2020, Supreme Court of the State of New York for Nassau County, Power Up Lending Group, Ltd. v. THC Therapeutics, Inc., Parker Mitchell, Transhare Corporation, and Brandon Romanek), alleging that the Company’s convertible promissory notes issued to Power Up are in default as a result of the Company’s alleged failure to honor the conversion terms of the notes along with related claims, and seeking monetary damages in excess of $280,920 (representing 200% of the outstanding note balances) and equitable relief to force the Company to honor Power Up’s conversion of note amounts into Company common stock. The Company and its officers answered the complaint and filed counterclaims against Power Up alleging that Power Up is an unregistered securities dealer acting in violation of the registration provisions of the Securities Exchange Act of 1934, and that Power Up’s notes are usurious and unenforceable as a matter of law. The court issued a temporary order forcing the Company and its transfer agent to honor Power Up’s conversions and prohibiting the Company and its transfer agent from issuing any shares to any parties other than Power Up (the “Power Up Order”), which the Company appealed, and such appeal was denied.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

On February 2, 2021, the Company received $22,000 from an investor for the issuance of 293,334 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 2, 2021, the Company received $35,000 from an investor for the issuance of 466,667 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 8, 2021, the Company received $40,000 from an investor for the issuance of 533,333 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 10, 2021, the Company received $17,000 from an investor for the issuance of 170,000 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

 
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Table of Contents

 

On February 10, 2021, the Company received $25,000 from an investor for the issuance of 333,334 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 11, 2021, the Company received $5,000 from an investor for the issuance of 50,000 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 11, 2021, the Company received $20,000 from an investor for the issuance of 200,000 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 16, 2021, the Company received $20,000 from an investor for the issuance of 200,000 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

On February 17, 2021, the Company received $25,000 from an investor for the issuance of 333,334 shares of common stock. As of April 30, 2021, the shares had not been issued by the Company’s transfer agent because of the Power Up Order described above, and the value was included in stock payable.

 

The shares described above were sold pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) promulgated thereunder, as there was no general solicitation to the investors, and the transactions did not involve a public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
29

Table of Contents

 

ITEM 6. EXHIBITS.

 

Exhibit

 

Description

 

3.1

 

Bylaws (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.1 thereto)

 

3.2

 

Articles of Incorporation filed May 1, 2007 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.2 thereto)

 

3.3

 

Articles of Amendment filed January 23, 2017 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.3 thereto)

 

3.4

 

Articles of Amendment filed January 17, 2018 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.4 thereto)

 

3.5

 

Certificate of Designation for Series A Preferred Stock filed January 24, 2017 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.5 thereto)

 

3.6

 

Certificate of Designation for Series B Preferred Stock May 12, 2017 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.6 thereto)

 

3.7

 

Amended Certificate of Designation for Series B Preferred Stock filed June 5, 2017 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.7 thereto)

 

3.8

 

Articles of Amendment filed September 28, 2018 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 3.8 thereto)

 

10.1

 

Asset Purchase Agreement with Brandon Romanek dated January 20, 2017 (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 10.1 thereto)

 

10.2

 

Patent Assignment by and between Harvey Romanek and Brandon Romanek dated November 7, 2016 (incorporated by reference to Registration Statement on Form 10/A filed on October 4, 2019; File No. 000-55994; Exhibit 10.2 thereto)

 

10.3

 

Patent Assignment Confirmation and Release by Brandon Romanek (incorporated by reference to Registration Statement on Form 10/A filed on October 4, 2019; File No. 000-55994; Exhibit 10.3 thereto)

 

10.4

 

Patent Assignment Confirmation and Release by Harvey Romanek (incorporated by reference to Registration Statement on Form 10/A filed on October 4, 2019; File No. 000-55994; Exhibit 10.4 thereto)

 

10.5

 

Asset Purchase Agreement with Urban Oasis Float Center, LLC dated June 1, 2017 (incorporated by reference to Registration Statement on Form 10/A filed on April 8, 2019; File No. 000-55994; Exhibit 10.2 thereto)

 

 
30

Table of Contents

 

10.6

 

Amended Employment Agreement with Brandon Romanek February 1, 2019 (incorporated by reference to Form 10/A filed on August 22, 2019, File No. 000-55994; Exhibit 10.4 thereto)

 

10.7

 

Employment Agreement with Joshua Halford dated June 15, 2019 (incorporated by reference to Registration Statement on Form 10/A filed on July 8, 2019; File No. 000-55994; Exhibit 10.5 thereto)

 

 

 

21

 

Subsidiaries (incorporated by reference to Registration Statement on Form 10 filed on October 19, 2018; File No. 000-55994; Exhibit 21 thereto)

 

 

 

31.1*

 

Certification of CEO required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2*

 

Certification of CFO required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1*

 

Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

 

 

 

32.2*

 

Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

____________

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements 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.

 

 

THC THERAPEUTICS, INC.

       
Date: June 21, 2021 By: /s/ Brandon Romanek

 

 

Brandon Romanek

 
   

President

 

 

 

32

 

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