THCT THC Therapeutics Inc (CE)

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 31^st, 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

As of October 31, 2022, the Company had one employee.

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, 2022, 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 $40,171,211 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, 2022 and 2021:

Our operating results for the three months ended October 31, 2022 and 2021, and the changes between those periods for the respective items are summarized as follows:

Revenues

We did not earn any revenues during the three months ending October 31, 2022 and 2021, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our business strategy and launched sales of our dHydronator® product.

Operating Income (Loss)

Our loss from operations decreased to $107,562 during the three months ending October 31, 2022, from an operating loss of $221,555 in the comparative period ending October 31, 2021. The following table presents operating expenses for the three-month periods ending October 31, 2022 and 2021:

We realized a decrease of $23,149 in consulting fees during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, primarily due to a decrease in consulting services. We realized a decrease of $32,267 in salaries and wages expenses during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, due to salaries due to the resignation of our COO. We realized a decrease of $54,671 in general and administrative expenses during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, primarily due to a decrease in travel and rent costs.

Loss on change in derivative liability increased by $1,785,239 during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, due to change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Gain on settlement of debt increased by $2,310 during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, due to related party debt settled with physical silver assets. Interest expense decreased by $21,071 during the three months ended October 31, 2022, as compared to the same period in the prior fiscal year, due to related party debt settled with physical silver assets.

Net loss

Net loss increased to $2,134,302 during the three months ended October 31, 2022, from a net loss of $486,437 in the same period in the prior fiscal year due to the factors discussed above.

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.

The change in working capital during the three months ended October 31, 2022, was primarily due to an increase in current liabilities due to an increase in derivative liabilities as well as an increase in accounts payable. Current assets also increased primarily due to borrowing from related parties.

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, 2022 and 2021:

Cash Flows from Operating Activities

We did not generate positive cash flows from operating activities for the three months ended October 31, 2022.

For the three months ended October 31, 2022, net cash flows used in operating activities consisted of a net loss of $2,134,302, reduced by depreciation of $351, loss on change in derivative liabilities of $2,008,933, stock-based compensation of $21,280, and a net decrease in change of operating assets and liabilities of $84,563, offset by a gain on settlement of debt of $2,310. For the three months ended October 31, 2021, net cash flows used in operating activities consisted of a net loss of $486,437, reduced by depreciation of $4,126, amortization of debt discounts of $14,682, loss on change in derivative liabilities of $223,694, stock-based compensation of $35,429, y and a net decrease in change of operating assets and liabilities of $49,823. 

Cash Flows from Investing Activities

For the three months ended October 31, 2022 and 2021, no cashflows were used in investing activities. 

Cash Flows from Financing Activities

For the three months ended October 31, 2022, we received $33,451 from advances from related parties, and used $8,437 for net repayments on related party advances. For the three months ended October 31, 2021, we received $13,723 from advances from related parties, and used $26,031 for net repayments on related party advances.

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.