THC THERAPEUTICS, INC. This Annual Report on Form 10-K 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-
Plan of Operation
The following summary of our results of operations should be read in conjunction
with our audited consolidated financial statements for the years ended
Our financial statements are stated in
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 approximately
For the Year Ended
Our operating results for the year ended
Years ended
July 31, Change
2021 2020 Amount Percentage
Operating loss $ (939,977 ) $ (1,390,410 ) $ 450,433 (32 )%
Other income (expense) $ (945,468 ) $ (540,989 ) $ (404,479 ) 75 %
Net income (loss) $ (1,885,445 ) $ (1,931,399 ) $ 45,954 (2 )%
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Revenues
We did not earn any revenues during the fiscal years ending
Operating Income (Loss)
Our loss from operations decreased by
Years ended
July 31, Change
2021 2020 Amount Percentage
Professional fees $ 253,838 $ 315,755 $ (61,917 ) (20 )%
Consulting fees 205,170 611,313 (406,143 ) (66 )%
Salaries and wages 267,975 264,563 3,412 1 %
General and administrative
expenses 212,994 198,779 14,215 7 %
Total operating expenses $ 939,977 $ 1,390,410 $ (450,433 ) (32 %)
We realized a decrease of
We realized a decrease of
Other Income (Expense) The following table presents other income and expenses for the fiscal years endedJuly 31, 2020 and 2021: Years ended July 31, Change 2021 2020 Amount Percentage Gain/(loss) on change in derivative liability$ (393,718 ) $ 123,860 $ (517,578 ) (418 )% Gain/(loss) on settlement of debts - (165,000 ) 165,000 (100 )% Gain (loss) on sale of investment - (12,149 ) 12,149 100 % Interest Expense (551,750 ) (487,700 ) 64,050 47 % Total other income (expense) $ (945,468$ (540,989 ) $ 404,479 75 %
Gain/loss on change in derivative liability decreased by
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Net Income (loss)
Net loss increased to
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 ofJuly 31, 2021 , andJuly 31, 2020 : July 31, July 31, Change 2021 2020 Amount Percentage Cash and cash equivalents$ 296,130 $ 43,239 $ 252,891 585 % Prepaid expenses 4,586 - 4,586 100 % Inventory 830 - 830 100 % Current assets$ 301,546 $ 43,239 $ 258,307 597 % Current liabilities 2,857,394 1,828,920 1,028,474 56 % Working capital deficit$ (2,555,848 ) $ (1,785,681 ) $ (770,167 ) 43 %
The change in working capital during the year ended
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 fiscal years endedJuly 31, 2021 and 2020: Years ended July 31, Change 2021 2021 2020 Versus 2020
Cash Flows Used in Operating Activities
- (152,785 )
Cash Flows Provided by Financing Activities 794,153 313,621 480,532
Net increase (decrease) in Cash During
Period $ 252,891 $ (274,312 ) $ 527,203
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Cash Flows from Operating Activities
We did not generate positive cash flows from operating activities for the fiscal
year ended
For the fiscal year ended
Cash Flows from Investing Activities
For the fiscal year ended
Cash Flows from Financing Activities
For the fiscal year ended
Anticipated Cash Requirements
We estimate that our expenses to further implement our plan of operations over
the next 12 months, will be approximately
Estimated
Description Expenses
Legal, Accounting & Other Professional Expenses
400,000
Website Development 120,000
Rent 70,000
Advertising and Marketing 750,000
Staffing 770,000
General Working Capital 800,000
Cash Reserves 500,000
Total $ 3,810,000 Given that our cash needs are strongly driven by our growth requirements, we also intend to maintain a reserve sum for other risk contingencies that may arise.
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We intend to meet our cash requirements for the next 12 months through the use of the cash we have on hand and through business operations, future equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We currently do not have any other arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.
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.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with
Management believes the Company's critical accounting policies and estimates are those related to revenue recognition. Management considers these policies critical because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company's management has reviewed these critical accounting policies and related disclosures.
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
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.
Fair Value of Financial Instruments - The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
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.
We did not have a cumulative impact as of
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).
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.
Long-Lived Assets - In accordance with the
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.
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Stock-Based Compensation - The Company follows the guidelines in FASB Codification Topic ASC 718-10 "Compensation-Stock Compensation", which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
Earnings (Loss) Per Share - The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 "Earnings Per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.
Emerging Growth Company
We are an "emerging growth company" under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
Recently Issued Accounting Pronouncements
We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.
Seasonality
We do not expect our sales to be impacted by seasonal demands for our products and services.
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