NOTES TO FINANCIAL STATEMENTS
(UNAUDTED)
1. DESCRIPTION OF BUSINESS AND HISTORY
Description of business
– THC Theraputics, 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
– 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.
Going Concern
– The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $13,376,349 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. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.
3. SUMMARY OF SIGNIFICANT POLICIES
This summary of significant accounting policies of THC Therapeutics, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.
Principles of Consolidation
– The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
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 are $32,499 and $2,969 in cash and cash equivalents as of January 31, 2019, and July 31, 2018, 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 January 31, 2019, 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.
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.
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).
Revenue Recognition
:
Product Sales
– 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.
Costs of Revenue
– Costs of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue.
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 six months ended January 31, 2019 and 2018 the Company recorded an impairment expense of $2,429,981 and $0, respectively.
Segment Reporting
– Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company currently has one reportable segment for financial reporting purposes, which represents the Company's core business.
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.
Stock based compensation expense recognized under ASC 718-10 for the six months ended January 31, 2019 and 2018, totaled $513,705 and $109,340, respectively.
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 $25,238 and $10,834 during the six months ended of January 31, 2019 and 2018, respectively.
Recently Issued Accounting Pronouncements
– The Company has evaluated the all recent accounting pronouncements through ASU 2019-02 and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.
4. FIXED ASSETS
Fixed assets consist of the following as of January 31, 2019, and July 31, 2018:
|
|
January 31,
2019
|
|
|
July 31,
2018
|
|
dHydronator prototype
|
|
$
|
27,100
|
|
|
$
|
27,100
|
|
Float Spa and associated equipment
|
|
|
60,000
|
|
|
|
60,000
|
|
Office furniture and equipment
|
|
|
532
|
|
|
|
532
|
|
Less: accumulated depreciation
|
|
|
(39,999
|
)
|
|
|
(29,335
|
)
|
Fixed assets, net
|
|
$
|
47,633
|
|
|
$
|
58,297
|
|
Depreciation expense for the six months ended January 31, 2019, and 2018, was $10,664 and $10,087, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of January 31, 2019, and July 31, 2018:
|
|
January 31,
2019
|
|
|
July 31,
2018
|
|
Patents and patents pending
|
|
$
|
19,699
|
|
|
$
|
18,504
|
|
Trademarks
|
|
|
1,275
|
|
|
|
1,275
|
|
Website and domain names
|
|
|
15,098
|
|
|
|
15,098
|
|
Less: accumulated depreciation
|
|
|
(8,810
|
)
|
|
|
(6,590
|
)
|
Intangible assets, net
|
|
$
|
27,262
|
|
|
$
|
28,287
|
|
Amortization expense for the six months ended January 31, 2019, and 2018, was $2,220 and $2,180 respectively.
6. ROBOT CACHE – RIGHTS TO TOKENS AND EQUITY
On July 31, 2018, the Company entered into a Common Stock Purchase Agreement with and closed on (i) the purchase of rights to 10,536,315 “IRON” cryptographic tokens of Robot Cache, S.L., a Spanish limited company (“Robot Cache”), and (ii) a right of first refusal to purchase up to 3% of the capital stock of Robot Cache in a subsequent equity financing, in consideration of the Company’s issuance of 6,000,000 shares of the Company’s common stock to Robot Cache, and non-cashless warrants to purchase 3,000,000 shares of the Company’s common.
These non-cashless warrants are exercisable through the earlier of July 31, 2021, and the date that is 30 days after the date that the 5-day volume-weighted average price of the Company’s common stock exceeds the exercise price for the warrants by 25%. The exercise price for the warrants is staggered as follows: 500,000 shares at $0.75/share, 500,000 shares at $1.00/share, 500,000 shares at $1.50/share, 500,000 shares at $2.00/share, and 1,000,000 shares at $5.00/share.
In accordance with ASC 820, the company valued its investment in rights to Robot Cache’s tokens and equity based upon the unadjusted quoted prices of its common stock and the fair value of the warrants issued as consideration on the execution date of the agreement. The Company determined the value of the shares issued as consideration to be $0.28 per common share or $1,680,000. The stock warrants were valued at $749,981 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.28; exercise prices: from $0.75 to $5.00 per share; term: 3 years; risk-free interest rate: 2.77%; and volatility: 232%. The investment was recorded at cost basis and on the date of the investment.
During the quarter ending January 31, 2019, the Company was notified that due to Robot Cache’s regulatory constraints, the Company would not be receiving Robot Cache tokens. Robot Cache expressed an intent to restructure the investment with a replacement equity instrument. The Company was unable to determine with any certainty the value of the replacement equity instrument that may be issued; as a result, the Company has impaired the Robot Cache rights in full, and an impairment expense of $2,429,981 was recorded.
7. ADVANCES FROM RELATED PARTIES
Our Chief Executive Officer and a shareholder, a relative 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 (10) days of demand and bear interest at 5% annually.
Advances from related parties consist of the following as of January 31, 2019:
|
|
Principal as of
|
|
|
Six months ending
January 31, 2019
|
|
|
Principal as of
|
|
|
Accrued
interest balance
As of
|
|
|
|
July 31,
2018
|
|
|
Funds
advanced
|
|
|
Funds
repaid
|
|
|
January 31,
2019
|
|
|
January 31,
2019
|
|
B. Romanek, President and CEO
|
|
$
|
96,023
|
|
|
$
|
55,704
|
|
|
$
|
(72,113
|
)
|
|
$
|
79,614
|
|
|
$
|
9,029
|
|
Shareholder Relative of our President and CEO
|
|
|
63,543
|
|
|
|
6,850
|
|
|
|
-
|
|
|
|
70,363
|
|
|
|
3,148
|
|
TOTAL
|
|
$
|
159,566
|
|
|
$
|
62,554
|
|
|
$
|
(72,113
|
)
|
|
$
|
150,007
|
|
|
$
|
12,177
|
|
8. RELATED PARTY TRANSACTIONS
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. During the six months ending January 31, 2019, the Company accrued $41,136 due to Mr. Romanek related to this agreement. As of January 31, 2019, Mr. Romanek has allowed the Company to defer all compensation earned to date related to his employment totaling $102,842.
9. NOTES PAYABLE
Notes Payable at consists of the following:
|
|
January 31,
|
|
|
July 31,
|
|
|
|
2019
|
|
|
2018
|
|
On May 12, 2017, the Company issued a $60,000 promissory note; the note carries no interest rate and is payable in monthly installments of $5,000. As of January 31, 2019, $11,800 in principal payments had been paid. The Company imputed interest at a rate of 5%; during the six months ending January 31, 2019, the Company recorded imputed interest of $1,214.
|
|
|
48,200
|
|
|
|
48,200
|
|
|
|
|
|
|
|
|
|
|
On July 3, 2018, the Company issued a $28,000 promissory note; the note carries an interest rate of 12% and is payable in 24 monthly installments of $1,307 beginning November 1, 2018. As of January 31, 2019, $17,253 in principal payments had been paid. During the six months ending January 31, 2019, the Company recorded interest expense of $1,115 during the six months ended January 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 4, 2018, the Company settled all outstanding principal and interest through the execution of settment agreement in which the Company agreed to issue the debtholder 99,880 shares of the Company’s common stock. The fair value of the shares was $49,620; a loss on settlement of debt of $37,500 was recorded as a result of the debt settlement.
|
|
|
-
|
|
|
|
28,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
42,800
|
|
|
|
76,200
|
|
10. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable at consists of the following:
|
|
January 31,
|
|
|
July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
On May 9, 2017, we entered into a convertible promissory note pursuant to which we borrowed $92,500. The note carries an original issue discount of 7.5% ($7,500). Interest under the convertible promissory note is 6% per annum, and the principal and all accrued but unpaid interest is due on May 9, 2018. 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 of 65% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion. The Company recorded a debt discount in the amount of $92,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note.
Further, the Company recognized a derivative liability of $170,560 and an initial loss of $78,060 based on the Black-Scholes pricing model. During the six months ending January 31, 2019, the Company recorded a loss on derivative liability of $233,551.
The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $78,966 and $21,034 during the years ended July 31, 2018 and 2017, respectively.
|
|
|
92,500
|
|
|
|
92,500
|
|
|
|
|
|
|
|
|
|
|
Original issue discount
|
|
|
7,500
|
|
|
|
7,500
|
|
Unamortized debt discount
|
|
|
-
|
|
|
|
-
|
|
Total, net of unamortized discount
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
On January 4, 2019, we entered into a convertible promissory note pursuant to which we borrowed $150,000, net of debt issuance costs of $15,500 resulting in the Company receiveing $134,500. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on October 3, 2019. 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 of 50% of the lowest trading price of our common stock during the previous 20 days to the date of the notice of conversion. The Company recorded a debt discount in the amount of $150,000 in connection with the initial valuation of the derivative liability of the Note. The debt discount will be amortized over the term of the Note.
Further, the Company recognized a derivative liability of $289,420 and an initial loss of $154,920 based on the Black-Scholes pricing model. During the six months ending January 31, 2019, the Company recorded an additional loss on derivative liability of $510,182.
The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $15,385 six months ended January 31, 2019.
|
|
|
150000
|
|
|
|
-
|
|
Unamortized debt discount
|
|
|
(134,615
|
)
|
|
|
-
|
|
Total, net of unamortized discount
|
|
|
15,385
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,385
|
|
|
$
|
-
|
|
Derivative liability
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 following table presents a summary of the Company’s derivative liabilities associated with its convertible notes as of July 31, 2018, and January 31, 2019:
|
|
Amount
|
|
Balance July 31, 2017
|
|
$
|
146,229
|
|
Debt discount originated from derivative liabilities
|
|
|
-
|
|
Initial loss recorded
|
|
|
-
|
|
Adjustment to derivative liability due to debt settlement
|
|
|
-
|
|
Change in fair market value of derivative liabilities
|
|
|
(86,444
|
)
|
Balance July 31, 2018
|
|
$
|
59,785
|
|
Debt discount originated from derivative liabilities
|
|
|
-
|
|
Initial loss recorded
|
|
|
154,920
|
|
Adjustment to derivative liability due to debt settlement
|
|
|
-
|
|
Change in fair market value of derivative liabilities
|
|
|
793,101
|
|
Balance January 31, 2019
|
|
$
|
1,007,806
|
|
The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note and at the date of issuance and January 31, 2019:
Fair value assumptions – derivative notes:
|
|
Date of
issuance
|
|
|
January 31,
2019
|
|
Risk free interest rate
|
|
1.14-2.57
|
%
|
|
|
2.55
|
%
|
Expected term (years)
|
|
1.00-0.75
|
|
|
0.90-0.01
|
|
Expected volatility
|
|
390.76-433.18
|
%
|
|
|
427.05
|
%
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
11. STOCK WARRANTS
The following is a summary of warrant activity during the year ended July 31, 2018, and three months ending January 31, 2019:
|
|
Number of
Shares
|
|
|
Weighted Average Exercise Price
|
|
Balance, July 31, 2017
|
|
|
12,500
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
384,250
|
|
|
$
|
21.60
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
Warrants canceled
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2018
|
|
|
396,750
|
|
|
$
|
21.30
|
|
|
|
|
|
|
|
|
|
|
Warrants granted and assumed
|
|
|
190,000
|
|
|
|
3.91
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
Warrants canceled
|
|
|
-
|
|
|
|
-
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2019
|
|
|
586,750
|
|
|
$
|
19.16
|
|
586,750 of the warrants outstanding as of January 31, 2019 were exercisable.
On January 4, 2019, the Company issued stock warrants to purchase 150,000 shares of its common stock to a lender as part of a financing agreement. The warrants have a strike price of $1.00. The stock warrants are exercisable any time after issuance and have a life of 5 years. The value the warrants is embedded in the debt discount of the associated convertible promissory note. The valuation of the debt discount associated with the warrants was $74,699 which was made using the following assumptions: stock price at grant: $0.50; exercise price: $1.00; term: 5 years; risk-free interest rate: 2.49%; volatility: 391%.
On November 29, 2018, Company issued 20,000 stock warrants to a consultant for services. The stock warrants were valued at $19,954 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $1.01; exercise price: $5.00; term: 2 years; risk-free interest rate: 2.81%; volatility: 394%.
On November 29, 2018, Company issued 20,000 stock warrants to a consultant for services. The stock warrants were valued at $19,954 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $1.01; exercise price: $5.00; term: 2 years; risk-free interest rate: 2.81%; volatility: 394%.
12. 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 January 31, 2019, and July 31, 2018, the Company had 13,107,190 and 13,003,589 shares of common stock issued and outstanding, respectively.
As of January 31, 2019, and July 31, 2018, the Company had 207,000 and 206,000 shares of Series A Preferred Stock issued and outstanding, respectively.
As of January 31, 2019, and July 31, 2018, the Company had 16,500 and 16,500 shares of Series B Preferred Stock issued and outstanding, respectively.
The Company also has 246,930 shares payable in relation to prior agreements which were valued based upon their respective agreement dates at $247,800.
On December 7, 2018, the Financial Industry Regulatory Authority ("FINRA") announced the Company's 1:10 reverse stock split of the Company's common stock and preferred stock. The reverse stock split took effect on December 10, 2018. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.
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 $1.00 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 $1.00 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.
Issuances of Common and Preferred Stock for the six months ended January 31, 2019
On August 27, 2018, the Company agreed to issue 1,000 shares of the Company's Series A Preferred Stock to a consultant for services rendered. The shares were deemed fully earned at the date of grant. In accordance with ASC 820, the Company valued the shares issued based upon the unadjusted quoted prices of its common stock on the execution date of the agreement to which the preferred stock issued as consideration are convertible and determined the value to be $3.148 per common share or $314.80 per preferred share or $314,800.
Shares issued and payable for services
On December 16, 2017, the Company agreed to issue 16,250 shares of common stock to a consultant. The shares were fair valued at $48,263 at the date of grant. The shares are fully vested. The 16,200 shares were issued during the six months ended January 31, 2019. 50 shares remain payable to the consultant.
On June 1, 2018, the Company agreed to issue 5,000 shares of common stock to a consultant. The shares were fair valued at $17,550 at the date of grant. The shares vested immediately upon issuance. The shares were issued during the six months ended January 31, 2019.
On September 28, 2018, the Company agreed to issue 50,000 shares of common stock to a consultant. The shares were fair valued at $35,000 at the date of grant. The shares vested immediately upon issuance. The shares were issued during the six months ended January 31, 2019.
On November 28, 2018, the Company agreed to issue 25,000 shares of common stock to a consultant. The shares were fair valued at $26,225 at the date of grant. The shares vested immediately upon issuance. As of January 31, 2019, the shares had not yet been issued.
On November 29, 2018, the Company agreed to issue 15,000 shares of common stock and 20,000 warrants to purchase shares of the Company’s common stock at a price of $5.00 for a period of two years to a consultant. The shares and warrants were fair valued at $35,089 at the date of grant. The shares vested immediately upon issuance. 12,500 shares were issued during the six months ended January 31, 2019, and 2,500 shares remain payable to the Consultant.
On November 29, 2018, the Company agreed to issue 12,500 shares of common stock and 20,000 warrants to purchase shares of the Company’s common stock at a price of $5.00 for a period of two years to a consultant. The shares and warrants were fair valued at $32,567 at the date of grant. The shares vested immediately upon issuance. The 12,500 shares were issued during the six months ended January 31, 2019.
On January 29, 2019, the Company agreed to issue 100,000 shares of common stock to a consultant. The shares were fair valued at $70,000 at the date of grant. The shares vested immediately upon issuance. As of January 31, 2019, the shares had not yet been issued.
Shares issued and payable for private placements
On March 5, 2018, the Company received $25,000 from an investor pursuant to a private placement agreement with the investor to purchase 6,250 shares of the Company’s common stock and 6,250 warrants to purchase shares of the Company’s common stock at $2.00 per share for a period of three years. The shares were issued during the six months ended January 31, 2019.
On April 6, 2018, the Company received $40,000 from an investor pursuant to a private placement agreement with the investor to purchase 10,000 shares of the Company’s common stock and 25,000 warrants to purchase shares of the Company’s common stock at $2.00 per share for a period of five years. As of January 31, 2019, the shares had not yet been issued.
Shares payable for debt settlement
On March 31, 2018, the Company and a lender agreed to settle a $30,000 promissory note and associated accrued interest of $3,473. The Company agreed to issue 9,500 shares of the Company’s common stock and warrants to purchase 19,500 shares of the Company’s common stock at $0.20 for a three-year term. In return for the consideration, the Lender agreed to release the Company from all amounts owed. As of January 31, 2019, the shares had not yet been issued.
On January 4, 2019, the Company and a lender agreed to settle a $10,747 promissory note and associated accrued interest of $1,373. The Company agreed to issue 99,880 shares of the Company’s common stock. In return for the consideration the Lender agreed to release the Company from all amounts owed. As of January 31, 2019, the shares had not yet been issued.
13. COMMITMENTS AND CONTINGENCIES
The Company does not own any real property. Currently the Company leases approximately 750 square feet of 1,300 shared mixed-use office and living space in San Diego, California, at a monthly rent of $3,300, of which 50% is reimbursed by our CEO, Mr. Romanek, for his personal shared use of the space. The lease includes all utilities and is effective until January 31, 2019. There is no obligation for the landlord to continue to lease the Company the space on the same terms after January 31, 2019.
14. SUBSEQUENT EVENTS
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to January 31, 2019, to the date these financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements.