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 October 31,
2020
☐ 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)
(702) 602-8422
(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 December 15, 2020, the Company had 24,177,860 shares of
common stock outstanding.
THC THERAPEUTICS INC.
INDEX
|
|
Page
|
|
PART I. FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
Item 1.
|
Financial Statements
|
|
|
|
|
Consolidated Balance Sheets at October 31, 2020
(unaudited), and July 31, 2020
|
|
3
|
|
|
Consolidated Statement of Operations for the
three months ended October 31, 2020, and October 31, 2019
(unaudited)
|
|
4
|
|
|
Consolidated Statement of Stockholders’ Equity
(deficit) for the three months ended October 31, 2020, and October
31, 2019 (unaudited)
|
|
5
|
|
|
Consolidated Statement of Cash Flows for the
three months ended October 31, 2020, and October 31, 2019
(unaudited)
|
|
6
|
|
|
Notes to Financial Statements
(unaudited)
|
|
7
|
|
Item 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of
Operations
|
|
19
|
|
Item 3.
|
Quantitative and Qualitative Disclosures
about Market Risks
|
|
25
|
|
Item 4.
|
Controls and Procedures
|
|
25
|
|
|
|
|
|
|
PART II. OTHER INFORMATION
|
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
26
|
|
Item
1A.
|
Risk
Factors
|
|
26
|
|
Item
2.
|
Unregistered Sales of Equity Securities and Use
of Proceeds
|
|
26
|
|
Item
3.
|
Defaults Upon Senior Securities
|
|
26
|
|
Item
4.
|
Mine
Safety Disclosures
|
|
26
|
|
Item
5.
|
Other
Information
|
|
26
|
|
Item
6.
|
Exhibits
|
|
26
|
|
|
|
|
27
|
|
SIGNATURES
|
|
29
|
|
THC THERAPEUTICS INC.
CONSOLIDATED BALANCE
SHEETS
(Unaudited)
|
|
October 31,
2020
|
|
|
July
31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$ |
998 |
|
|
$ |
43,239 |
|
Total current assets
|
|
|
998 |
|
|
|
43,239 |
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
18,430 |
|
|
|
21,446 |
|
Intangible assets, net
|
|
|
19,551 |
|
|
|
20,661 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
38,979 |
|
|
|
85,346 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$ |
556,433 |
|
|
$ |
499,249 |
|
Accrued liabilities due to
related parties
|
|
|
9,567 |
|
|
|
8,474 |
|
Advances from related
parties
|
|
|
110,938 |
|
|
|
83,660 |
|
Convertible notes payable,
net
|
|
|
353,837 |
|
|
|
305,110 |
|
Convertible notes payable-
Related party, net
|
|
|
150,137 |
|
|
|
124,931 |
|
Derivative liability
|
|
|
704,768 |
|
|
|
842,573 |
|
Total current liabilities
|
|
|
1,885,680 |
|
|
|
1,863,997 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,885,680 |
|
|
|
1,863,997 |
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Common stock; $0.001 par value;
500,000,000 shares authorized; 22,180,692 and 21,461,784 shares
issued and outstanding as of October 31, 2020 and July 31, 2020,
respectively
|
|
|
22,181 |
|
|
|
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 as of
October 31, 2020 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 October 31, 2020 and July 31, 2020,
respectively
|
|
|
218 |
|
|
|
218 |
|
Preferred B stock; $0.001
par value; 16,500 shares authorized; 0 and0 shares issued and
outstanding as of October 31, 2020 and July 31, 2020,
respectively
|
|
|
- |
|
|
|
- |
|
Stock payable
|
|
|
221,700 |
|
|
|
221,700 |
|
Stock receivable
|
|
|
(6,902,000 |
) |
|
|
(6,902,000 |
) |
Additional paid-in capital
|
|
|
39,527,565 |
|
|
|
39,506,284 |
|
Accumulated deficit
|
|
|
(34,716,365 |
) |
|
|
(34,626,315 |
) |
Total stockholders' deficit
|
|
|
(1,846,701 |
) |
|
|
(1,778,651 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' deficit
|
|
$ |
38,979 |
|
|
$ |
85,346 |
|
The accompanying notes are an integral part of these financial
statements.
THC THERAPEUTICS INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
October 31, 2020
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
20,303 |
|
|
|
18,287 |
|
Consulting fees
|
|
|
7,000 |
|
|
|
36,888 |
|
Payroll expense
|
|
|
46,937 |
|
|
|
46,937 |
|
General and administrative
expenses
|
|
|
35,681 |
|
|
|
63,703 |
|
Depreciation and
amortization
|
|
|
4,126 |
|
|
|
6,442 |
|
Total operating expenses
|
|
|
114,047 |
|
|
|
172,257 |
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(114,047 |
) |
|
|
(172,257 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Gain on derivative liability
|
|
|
137,805 |
|
|
|
139,007 |
|
Interest Expense
|
|
|
(113,808 |
) |
|
|
(112,223 |
) |
Total other income (expense)
|
|
|
23,997 |
|
|
|
26,784 |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(90,050 |
) |
|
$ |
(145,473 |
) |
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Basic weighted average common
shares outstanding
|
|
|
21,777,895 |
|
|
|
14,748,054 |
|
The accompanying notes are an integral part of these financial
statements.
THC THERAPEUTICS INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS DEFICIT
(Unaudited)
For
the Three Months October 31, 2019
|
|
|
|
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 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months October 31, 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,
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 |
) |
The accompanying notes are an integral part of these financial
statements.
THC THERAPEUTICS INC.
CONSOLIDATED
STATEMENT OF CASHFLOWS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
October 31, 2020
|
|
|
October 31, 2019
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
Net loss
|
|
$ |
(90,050 |
) |
|
$ |
(145,473 |
) |
Adjustments to reconcile net loss
to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Loss on change in derivative
liabilities
|
|
|
(137,805 |
) |
|
|
(139,007 |
) |
Amortization of debt
discount
|
|
|
95,933 |
|
|
|
96,411 |
|
Stock based compensation
|
|
|
- |
|
|
|
2,259 |
|
Depreciation and
amortization
|
|
|
4,126 |
|
|
|
6,442 |
|
Changes in operating assets and
liabilities
|
|
|
|
|
|
|
|
|
Increase in accounts payable
|
|
|
57,184 |
|
|
|
249,005 |
|
Increase (decrease) in accounts
payable related party
|
|
|
1,093 |
|
|
|
(201,246 |
) |
Net cash from operating
activities
|
|
|
(69,519 |
) |
|
|
(131,609 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from investing
|
|
|
|
|
|
|
|
|
Increase in short-term
investments
|
|
|
- |
|
|
|
(168,122 |
) |
Net cash used in investing
activities
|
|
|
- |
|
|
|
(168,122 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
|
|
Proceeds from related party
debts
|
|
|
35,894 |
|
|
|
20,565 |
|
Payments on related party
debts
|
|
|
(8,616 |
) |
|
|
(54,391 |
) |
Proceeds from loans
|
|
|
- |
|
|
|
70,000 |
|
Net cash from financing
activities
|
|
|
27,278 |
|
|
|
36,174 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
Cash
|
|
|
(42,241 |
) |
|
|
(263,557 |
) |
|
|
|
|
|
|
|
|
|
Beginning cash balance
|
|
|
43,239 |
|
|
|
317,551 |
|
|
|
|
|
|
|
|
|
|
Ending cash balance
|
|
$ |
998 |
|
|
$ |
53,994 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
- |
|
|
$ |
- |
|
Cash paid for tax
|
|
$ |
- |
|
|
$ |
- |
|
The accompanying notes are an integral part of these financial
statements.
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 – The Company has incurred losses for
the past several years while developing infrastructure and its
intellectual property. As of October 31, 2020, the Company had a
working capital deficit of approximately $1,884,682. In
response to these conditions, the Company plans to raise additional
capital through the sale of debt and equity securities.
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 $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. The
consolidated financial statements of the Company do not include any
adjustments that may result from the outcome of these
aforementioned uncertainties.
COVID-19 Pandemic - In December 2019, an outbreak of a novel
strain of coronavirus originated in Wuhan, China (“COVID-19”) and
has since spread worldwide, including to the Unites States, posing
public health risks that have reached pandemic proportions (the
“COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the
health and economic wellbeing of our employees, customers and
vendors. Like most businesses world-wide, the COVID-19 Pandemic has
impacted the Company financially; however, management cannot
presently predict the scope and severity with which COVID-19 will
impact our business, financial condition, results of operations and
cash flows.
3. SUMMARY OF SIGNIFICANT POLICIES
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.
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$998 and $43,239 in cash and
no cash equivalents as of October 31, 2020 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 October 31, 2020, 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.
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 October 31, 2020:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial
Instruments
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
704,768 |
|
|
$ |
704,768 |
|
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 three months ending October 31,
2020 and 2019 the Company recorded an impairment expense of $0 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 three months ended October 31, 2020 and 2019, totaled $0 and
$2,259, 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 $266 and $35,164 during the three
months ended October 31, 2020 and 2019, respectively.
Recently Issued Accounting Pronouncements –
ASU 2016-02 - In February 2016, the FASB issued ASU No. 2016-02,
"Leases", ("ASC 842") which amended the existing accounting
standards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making targeted
changes to lessor accounting. ASC 842 is effective for public
companies during interim and annual reporting periods beginning
after December 15, 2018, with early adoption permitted. In July
2018, the FASB issued ASU No. 2018-11, which permits entities to
record the right-of-use asset and lease liability on the date of
adoption, with no requirement to recast comparative periods.
We adopted ASC 842 effective January 1, 2019 using the optional
transition method of recognizing a cumulative-effect adjustment to
the opening balance of retained earnings on January 1, 2019.
Therefore, comparative financial information was not adjusted and
continues to be reported under the prior lease accounting guidance
in ASC 840. We elected the transition relief package of practical
expedients, and as a result, we did not assess 1) whether existing
or expired contracts contain embedded leases, 2) lease
classification for any existing or expired leases, and 3) whether
lease origination costs qualified as initial direct costs. We
elected the short-term lease practical expedient by establishing an
accounting policy to exclude leases with a term of 12 months or
less, as well as the land easement practical expedient for
maintaining our current accounting policy for existing or expired
land easements.
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting," which modifies the accounting for share-based
payment awards issued to nonemployees to largely align it with the
accounting for share-based payment awards issued to employees. ASU
2018-07 is effective for us for annual periods beginning January 1,
2019. Management evaluated ASU 2018-07 and determined that the
adoption of this new accounting standard did not have a material
impact on the Company’s consolidated financial statements.
4. FIXED ASSETS
Fixed assets consist of the following as of October 31, 2020 and
July 31, 2020:
|
|
October
31,
2020
|
|
|
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
|
|
|
(69,202 |
) |
|
|
(66,186 |
) |
Fixed assets, net
|
|
$ |
18,430 |
|
|
$ |
21,446 |
|
Depreciation expense for the three months ended October 31, 2020
and 2019, was $3,016 and $5,332, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of October 31, 2020
and July 31, 2020:
|
|
October
31,
2020
|
|
|
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
|
|
|
(16,521 |
) |
|
|
(15,411 |
) |
Intangible assets,
net
|
|
$ |
19,551 |
|
|
$ |
20,661 |
|
Amortization expense for the three months ended October 31,2020 and
July 31, 2020, was $1,110 and $1,110 respectively.
6. 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
October 31, 2020:
|
|
Principal as
of
|
|
|
Three Months
ending
October 31,
2020
|
|
|
Principal as
of
|
|
|
Accrued
interest
balance
As
of
|
|
|
|
July
31,
2020
|
|
|
Funds
advanced
|
|
|
Funds
repaid
|
|
|
October
31,
2020
|
|
|
October
31,
2020
|
|
B. Romanek, President
and CEO
|
|
$ |
13,267 |
|
|
$ |
35,894 |
|
|
$ |
(8,616 |
) |
|
$ |
40,545 |
|
|
$ |
257 |
|
Shareholder Relative of
our President and CEO
|
|
|
70,393 |
|
|
|
- |
|
|
|
- |
|
|
|
70,393 |
|
|
|
9,310 |
|
TOTAL
|
|
$ |
83,660 |
|
|
$ |
35,894 |
|
|
$ |
(8,616 |
) |
|
$ |
110,938 |
|
|
$ |
9,567 |
|
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 three months ending October 31, 2020, the Company
accrued $46,937 due to Mr. Romanek related to this agreement. As of
October 31, 2020, Mr. Romanek has allowed the Company to defer a
total of $344,623 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 three
months ended October 31, 2020 Mr. Halford earned $7,000.
7. CONVERTIBLE NOTES PAYABLE
Convertible Notes Payable at consists of the following:
|
|
October
31,
|
|
|
July
31,
|
|
|
|
2020
|
|
|
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 October 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.
|
|
|
72,000
|
|
|
|
72,000
|
|
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 $8,821.92 during the three months ended October 31, 2020.
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 October 31, 2020, the Company recorded a gain on
derivative liability of $41,851.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt
discount
|
|
|
(8,438
|
)
|
|
|
(17,260)
|
|
Total, net of
unamortized discount
|
|
|
63,562
|
|
|
|
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 October 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 three months ended
October 31, 2020
Further, the Company
recognized a derivative liability of $141,391 and an initial loss
of $0 based on the Black-Scholes pricing model. During the three
months ended, October 31, 2020, the Company recorded a gain on
derivative liability of $21,758.
|
|
|
145,108
|
|
|
|
145,108
|
|
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
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 $22,778.39 during the three
months ended October 31, 2020
Further, the Company
recognized a derivative liability of $192,236 and an initial loss
of $64,236 based on the Black-Scholes pricing model. During the
three months ended, October 31, 2020, the Company recorded a gain
on derivative liability of $23,015.
|
|
|
113,680
|
|
|
|
135,680
|
|
Unamortized debt
discount
|
|
|
(71,306)
|
|
|
|
(94,085)
|
|
Total, net of
unamortized discount
|
|
|
42,374
|
|
|
|
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 $756 during the three months
ended October 31, 2020
Further, the Company
recognized a derivative liability of $1,500 and an initial loss of
$1,500 based on the Black-Scholes pricing model. During the three
months ended, October 31, 2020, the Company recorded a gain on
derivative liability of $284.
|
|
|
3,000
|
|
|
|
3,000
|
|
Unamortized debt
discount
|
|
|
(1,200)
|
|
|
|
(1,956)
|
|
Total, net of
unamortized discount
|
|
|
1,800
|
|
|
|
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.
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 $27,159 during the three months
ended October 31, 2020
Further, the Company
recognized a derivative liability of $64,888 based on the
Black-Scholes pricing model. During the three months ended, October
31, 2020, the Company recorded a gain on derivative liability of
$25,001.
|
|
|
100,000
|
|
|
|
100,000
|
|
Unamortized debt
discount
|
|
|
(21,551)
|
|
|
|
(48,710)
|
|
Total, net of
unamortized discount
|
|
|
78,449
|
|
|
|
51,290
|
|
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 $11,211 during the three months
ended October 31, 2020
Further, the Company
recognized a derivative liability of $138,172 and an initial loss
of $75,172 based on the Black-Scholes pricing model. During the
three months ended, October 31, 2020, the Company recorded a gain
on derivative liability of $6,229.
|
|
|
66,780
|
|
|
|
66,780
|
|
Unamortized debt
discount
|
|
|
(44,236)
|
|
|
|
(55,447)
|
|
|
|
|
22,544
|
|
|
|
22,544
|
|
Total, net of
unamortized discount
|
|
$
|
353,837
|
|
|
$
|
305,110
|
|
8. 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 $25,205 during the three months ended October 31, 2020.
Further, the Company recognized a derivative liability of $387,232
and an initial loss of $187,232 based on the Black-Scholes pricing
model. During the three months ended October 31, 2020, the Company
also recorded a gain on derivative liability of $19,667.
As of October 31, 2020, convertible notes due to related parties
net of unamortized debt discounts of $49,863, was $150,137.
9. 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 October 31,
2020:
|
|
Amount
|
|
Balance July 31,
2020
|
|
$ |
842,573 |
|
Debt discount
originated from derivative liabilities
|
|
|
- |
|
Initial loss
recorded
|
|
|
- |
|
Adjustment to
derivative liability due to debt settlement
|
|
|
(24,104 |
) |
Change in fair market
value of derivative liabilities
|
|
|
(113,701 |
) |
Balance October
31, 2020
|
|
$ |
704,768 |
|
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 October 31, 2020:
Fair value
assumptions – derivative notes:
|
|
Date
of
issuance
|
|
|
October
31,
2020
|
|
Risk free interest
rate
|
|
.10-20
|
%
|
|
.1-.13% |
|
Expected term
(years)
|
|
.493-0.134
|
|
|
0.24-0.66
|
|
Expected volatility
|
|
236.46%-458.59
|
%
|
|
|
242.51 |
% |
Expected dividends
|
|
|
0 |
|
|
|
0 |
|
10. STOCK WARRANTS
The following is a summary of warrant activity during the three
months ending October 31, 2020:
|
|
Number
of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Balance, July 31,
2020
|
|
|
922,129 |
|
|
$ |
10.34 |
|
|
|
|
|
|
|
|
|
|
Warrants granted and
assumed
|
|
|
- |
|
|
|
0.088 |
|
Warrants expired
|
|
|
|
|
|
|
- |
|
Warrants rescinded or
canceled
|
|
|
- |
|
|
|
- |
|
Warrants exercised
|
|
|
- |
|
|
|
.27 |
|
|
|
|
|
|
|
|
|
|
Balance, October 31,
2020
|
|
|
922,129 |
|
|
$ |
1.47 |
|
922,129 of the warrants outstanding as of October 31, 2020 were
exercisable.
11. 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 October 31, 2020 and July 31, 2020, the Company had
22,180,692 and 21,461,784 shares of common stock issued and
outstanding, respectively.
As of October 31, 2020 and July 31, 2020, the Company had 218,000
and 218,000 shares of Series A Preferred Stock issued and
outstanding, respectively.
As of October 31, 2020 and July 31, 2020, the Company had 0 and 0
shares of Series B Preferred Stock issued and outstanding,
respectively.
The Company also has 1,219,816 shares payable in relation to prior
agreements which were valued based upon their respective agreement
dates at $221,700.
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 October 31, 2020, all shares of Series B Preferred Stock
eligible for mandatory conversion have been converted into common
stock.
Issuances of Common and Preferred Stock for the three months
ended October 31, 2019
On October 1, 2019, the Company issued a total of 257,661 shares of
common stock to settle $298,837 of stock payable related to
services performed in prior periods.
On October 1, 2019, the Company issued a total of 9,580 shares of
common stock to settle $59,432 of stock payable related to debt
settled in prior periods.
On September 10, 2019, a shareholder converted 1,000 shares of
Series A Preferred Stock into 100,000 shares of common stock.
On October 9, 2019, the Company agreed to issue 50,000 shares of
common stock to a financial consultant for accounting services. The
shares were fair valued at $112,500 at the date of grant. The
shares vested immediately upon issuance.
On October 18, 2019, a convertible note holder converted $10,032 in
principal and fees into 16,500 shares of common stock at a
conversion price of $0.608 per share.
Issuances of Common and Preferred Stock for the three months
ended October 31, 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.
12. SUBSEQUENT EVENTS
Conversion of convertible debt
On November 17, 2020, a convertible note holder converted $20,000
in principal into 938,967 shares of common stock at a conversion
price of $0.0213 per share.
On November 30, 2020, a convertible note holder converted $20,000
in principal and fees into 1,058,201 shares of common stock at a
conversion price of $0.0189 per share.
On December 11, 2020, Parker Mitchell was appointed the Company’s
CEO, and the Company entered into an employment agreement with Mr.
Mitchell in connection with the appointment. Pursuant to the
employment agreement, Mr. Mitchell will be paid a salary of $60,000
per year, subject to increase upon the completion of certain
milestones, and Mr. Mitchell will receive warrants to purchase
10,000,000 shares of Company common stock as follows:
three-year warrants to purchase 2,000,000 shares of Company common
stock at $0.08/share, exercisable beginning on the date that
Company’s common stock has traded for at least $0.08/share for at
least 60 calendar days; three-year warrants to purchase 2,000,000
shares of Company common stock at $0.16/share, exercisable
beginning on the date that Company’s common stock has traded for at
least $0.16/share for at least 60 calendar days; three-year
warrants to purchase 2,000,000 shares of Company common stock at
$0.32/share, exercisable beginning on the date that Company’s
common stock has traded for at least $0.32/share for at least 60
calendar days; three-year warrants to purchase 2,000,000 shares of
Company common stock at $0.64/share, exercisable beginning on the
date that Company’s common stock has traded for at least
$0.64/share for at least 60 calendar days; and three-year warrants
to purchase 2,000,000 shares of Company common stock at
$1.28/share, exercisable beginning on the date that Company’s
common stock has traded for at least $1.28/share for at least 60
calendar days.
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.
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.
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.
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
The Company currently has four employees: our CEO, Parker Mitchell,
our founder and director, Brandon Romanek, and two other
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
October 31, 2020, 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.
For the Three Months Ended October 31, 2020 and
2019:
Our operating results for the three months ended October 31, 2020
and 2019, and the changes between those periods for the respective
items are summarized as follows:
|
|
Three months
ended
|
|
|
|
|
|
|
|
|
|
October
31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
Percentage
|
|
Operating income
(loss)
|
|
$ |
(114,047 |
) |
|
$ |
(172,257 |
) |
|
$ |
58,210 |
|
|
|
34 |
% |
Other income
(expense)
|
|
$ |
23,997 |
|
|
$ |
26,784 |
|
|
$ |
(2,787 |
) |
|
|
10 |
% |
Net income (loss)
|
|
$ |
(90,050 |
) |
|
$ |
(145,473 |
) |
|
$ |
55,423 |
|
|
|
38 |
% |
Revenues
We did not earn any revenues during the three months ending October
31, 2020 and 2019, respectively. We do not anticipate earning
significant revenues until such time that we have fully developed
our investment strategy.
Operating Income (Loss)
Our loss from operations decreased by $58,210 during the three
months ending October 31, 2020, from an operating loss of $172,257
in the same period in 2019. The following table presents operating
expenses for the three-month periods in 2020 and 2019:
|
|
Three months
ended
|
|
|
|
|
|
|
|
|
|
October
31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
Percentage
|
|
Professional fees
|
|
$ |
20,303 |
|
|
$ |
18,287 |
|
|
$ |
2,016 |
|
|
|
11 |
% |
Consulting fees
|
|
|
7,000 |
|
|
|
36,888 |
|
|
|
(29,888 |
) |
|
|
(81 |
)% |
Payroll expense
|
|
|
46,937 |
|
|
|
46,937 |
|
|
|
- |
|
|
|
-
|
%
|
General and
administrative expenses
|
|
|
35,681 |
|
|
|
63,703 |
|
|
|
(28,022 |
) |
|
|
(44 |
)% |
Depreciation and
amortization
|
|
|
4,126 |
|
|
|
6,442 |
|
|
|
(2,316 |
) |
|
|
(36 |
)% |
Total operating
expenses
|
|
$ |
114,047 |
|
|
$ |
172,257 |
|
|
$ |
(58,210 |
) |
|
|
(34 |
)% |
We realized an increase of $2,016 in professional fees during the
three months ended October 31, 2020, as compared to the same period
in 2019, primarily due to an increase in legal fees. We realized a
decrease of $29,888 in consulting fees during the three months
ended October 31, 2020, as compared to the same period in 2019,
primarily due to a decrease in purchased consulting services. We
realized a decrease of $28,022 in general and administrative
expenses during the three months ended October 31, 2020, as
compared to the same period in 2019, primarily due to a decrease in
advertising costs.
We realized a decrease of $2,316 in depreciation expenses during
the three months ended October 31, 2020, as compared to the same
period in 2019, due to a decrease in depreciable assets.
Other Income (Expense)
The following table presents other income and expenses for the
three months ended October 31, 2020 and 2019:
|
|
Three months
ended
|
|
|
|
|
|
|
|
|
|
October
31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Amount
|
|
|
Percentage
|
|
Gain/(loss) on change
in derivative liability
|
|
$ |
137,805 |
|
|
$ |
139,007 |
|
|
$ |
(1,202 |
) |
|
|
(1 |
)% |
Interest Expense
|
|
|
(113,808 |
) |
|
|
(112,223 |
) |
|
|
(1,585 |
) |
|
|
1 |
% |
Total other income
(expense)
|
|
$ |
23,997 |
|
|
$ |
26,784 |
|
|
$ |
(2,787 |
) |
|
|
(10 |
)% |
Gain on change in derivative liability decreased by $1,202 during
the three months ended October 31, 2020, as compared to the same
period in 2019, due to change in derivative liabilities caused by
fluctuations in the price of our common stock between reporting
periods Interest expense decreased by $1,585 during the three
months ended October 31, 2020, as compared to the same period in
2019, due to a conversion of principal amounts of convertible notes
to common stock.
Net Income (loss)
Net loss decreased to $(90,050) during the three months ended
October 31, 2020, from a net loss of $(145,473) in the same period
2019.
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
October 31, 2020, and July 31, 2020:
|
|
October
31,
|
|
|
July
31,
|
|
|
Change
|
|
|
|
2020
|
|
|
2020
|
|
|
Amount
|
|
|
Percentage
|
|
Cash and cash
equivalents
|
|
$ |
998 |
|
|
$ |
43,239 |
|
|
$ |
(42,241 |
) |
|
|
(98 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
998 |
|
|
$ |
43,239 |
|
|
$ |
(42,241 |
) |
|
|
(98 |
)% |
Current liabilities
|
|
|
1,885,680 |
|
|
|
1,863,997 |
|
|
|
21,683 |
|
|
|
1 |
% |
Working capital
|
|
$ |
(1,884,682 |
) |
|
$ |
(1,820,758 |
) |
|
$ |
(63,924 |
) |
|
|
4 |
% |
The change in working capital during the three months ended October
31, 2020, was primarily due to a decrease in current assets of
$42,241 and an increase in current liabilities of $21,683. Current
assets decreased due to a decrease in cash as of October 31, 2020.
Current liabilities increased due to an increase in borrowing,
which resulted in convertible notes payable, net of $353,837,
advances from related parties of $110,938, convertible notes
payable – related party, net of $150,137, derivative liability of
$704,768, as compared to convertible notes payable, net of
$305,110, advances from related parties of $83,660, convertible
notes payable – related party, net of $124,931, derivative
liability of $842,573 as of July 31, 2020. Cash decreased as of
October 31, 2020, by $42,239 to $998, primarily caused by increased
cash used in operations during the three months ending October 31,
2020.
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 October 31, 2020 and 2019:
|
|
Three months
ended
|
|
|
|
|
|
|
October
31,
|
|
|
Change
2020
|
|
|
|
2020
|
|
|
2019
|
|
|
Versus
2019
|
|
Cash Flows Used in
Operating Activities
|
|
$ |
(69,519 |
) |
|
$ |
(131,609 |
) |
|
$ |
62,090 |
|
Cash Flows Used in
Investing Activities
|
|
|
- |
|
|
|
(168,122 |
) |
|
|
168,122 |
|
Cash Flows Provided by
Financing Activities
|
|
|
27,278 |
|
|
|
36,174 |
|
|
|
(8,896 |
) |
Net increase (decrease)
in Cash During Period
|
|
$ |
(42,241 |
) |
|
$ |
(263,557 |
) |
|
$ |
221,316 |
|
Cash Flows from Operating Activities
We did not generate positive cash flows from operating activities
for the three months ended October 31, 2020.
For the three months ended October 31, 2020, net cash flows used in
operating activities consisted of a net loss of $90,050, reduced by
depreciation of $4,126, amortization of debt discounts of $95,933,
offset by a gain on change in derivative liabilities of $137,805,
and increased by a net increase in change of operating assets and
liabilities of $58,277. For the three months ended October
31, 2019, net cash flows used in operating activities consisted of
a net loss of $145,473, reduced by depreciation of $6,442,
amortization of debt discounts of $96,411, stock-based compensation
of $2,259, offset by a gain on change in derivative liabilities of
$139,007, and increased by a net increase in change of operating
assets and liabilities of $47,759.
Cash Flows from Investing Activities
For the three months ended October 31, 2020, no cashflows were used
in investing activities. For the three months ended October 31,
2019, net cashflows used in investing activities consisted of
purchases of other assets of $168,122.
Cash Flows from Financing Activities
For the three months ended October 31, 2020, we received $35,894
from loans from related party, and used $8,616 for net repayments
on related party. For the three months ended October 31,
2019, we received $70,000 from notes payable, we received $20,565
from loans from related party and used $54,391 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.
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 October 31, 2020, that
have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
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.
ITEM 1A.
RISK FACTORS.
Not applicable.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
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.
The shares issued in conversion of convertible notes were issued
pursuant to the exemption from registration relying on Section
3(a)(9) of the Securities Act of 1933 as the shares were issued in
exchange for other securities of the Company held by each lender,
there was no additional consideration for the exchanges, and there
was no remuneration for the solicitation of the exchanges.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE
SAFETY DISCLOSURES.
None.
ITEM 5.
OTHER INFORMATION.
None.
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)
|
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.
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:
December 17, 2020
|
By:
|
/s/
Parker Mitchell
|
|
|
|
Parker
Mitchell
|
|
|
|
CEO
|
|
THC Therapeutics (PK) (USOTC:THCT)
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