THC Therapeutics, Inc. [THCT] Filings

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended July 31, 2023

OR

☐     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

Registrant’s telephone number, including area code: (833) 420-8428

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

On January 31, 2023, the last business day of the registrant’s second fiscal quarter during the fiscal year ending July 31, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $3,008,728, based upon the closing price on that date of the common stock of the registrant on the OTC Link alternative quotation system of $.0926/share. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its common stock are deemed to be affiliates of the registrant.

As of February 26, 2024, the registrant had 34,146,149 shares of its common stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

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-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 for THC Therapeutics, Inc. Such discussion represents only the best present assessment from our Management.

PART I

Item 1. Business

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. 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, 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., as a development stage company with plans to provide products and services related to themed children’s parties, and later changed its name to Aviation Surveillance Systems, Inc., when the Company shifted its business plan to focus on merging with an operating firm, and Harmonic Energy, Inc., when the Company shifted its plan of operations again, instead focusing on oil and gas operations.

On January 23, 2017, the Company experienced a change of control, and new management determined to shift the Company’s focus and changed the Company’s name to THC Therapeutics, Inc., focusing on wellness operations and development of a herb dryer for use with cannabis. 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. and began to also focus on acquiring digital equity or digital assets of blockchain technology companies. On September 28, 2018, because of the regulatory environment surrounding blockchain technology companies, the Company changed its name back to THC Therapeutics, Inc., abandoned its blockchain technology focus, and refocused its efforts on its wellness operations.

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.

Wellness Operations

THC Therapeutics is focused on the wellness industry, with plans to develop a patented herb dryer.

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®, 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.

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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.

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. 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.

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.

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 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 one full-time employee, our founder, CEO and director, Brandon Romanek.

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.

Item 1A. Risk Factors.

The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item. However, the following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to time.

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline, and investors could lose all or part of their investment.

There is substantial doubt about our ability to continue as a going concern.

We have not generated any revenues or profit during the years ended July 31, 2023 and 2022. We expect that our operating expenses will increase over the next twelve months to continue our development activities. Based on our average monthly expenses and current burn rate, we estimate that our cash on hand will not sufficiently support our operation for the next twelve months. If we cannot raise the money that we need in order to continue to operate our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there is a substantial risk that our business would fail. If we are unsuccessful in raising additional financing, we may need to curtail, discontinue or cease operations.

We have had a history of losses and may incur future losses, which may prevent us from attaining profitability.

We have had a history of operating losses since our inception and, as of July 31, 2023, we had an accumulated deficit of approximately $38.4 million. We may incur operating losses in the future, and these losses could be substantial and impact our ability to attain profitability. We expect to significantly increase expenditures for product development, general and administrative expenses, and sales and marketing expenses, and there is no guarantee that we will ever generate revenues, or that we ever achieve or sustain profitability or positive operating cash flows. Even if we achieve profitability and positive operating cash flows, we may not be able to sustain or increase profitability or positive operating cash flows on a quarterly or annual basis.

Federal drug regulation and enforcement may adversely impact our operations.

Currently, there are approximately 37 states plus the District of Columbia that have laws and/or regulation that recognize in one form or another legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment, and there are approximately 18 states and the District of Columbia that have more expansive laws legalizing marijuana for recreational use. Conversely, under the Controlled Substances Act (the “CSA”), the policy and regulations of the Federal government and its agencies is that cannabis has no medical benefit and a range of activities including cultivation and use of cannabis for personal use is prohibited. Until Congress amends the CSA with respect to medical marijuana, there is a risk that federal authorities may enforce current federal law.

As we plan on marketing our herb dryer to the cannabis industry, federal enforcement of federal law would adversely affect the cannabis industry and would therefore adversely affect the Company’s planned operations and sales. Active enforcement of the current federal regulatory position on cannabis may thus indirectly and adversely affect revenues and profits of the Company.

Our products may become subject to regulation by the FDA, which would materially increase the costs associated with developing the products.

We do not believe our dHydronator® herb dryer product will be subject to regulation by the U.S. Food and Drug Administration (the “FDA”) or any other government agency (other than pursuant to general laws governing truth in advertising and similar laws under the purview of the Federal Trade Commission). The FDA could disagree and determine that the dHydronator® is subject to FDA regulation.

The process for obtaining regulatory approval to market products regulated by the FDA is expensive, time-consuming, and can vary substantially based on the type, complexity, and novelty of the product candidates involved. Our ability to generate revenues from the sale of the dHydronator® would be adversely affected if we are delayed because our product is subject to FDA regulation, or if we are unable to successfully develop our products to comply with FDA regulation.

We may not be able to achieve our strategic initiatives and grow our business as anticipated.

In September 2018, we determined to focus on our sanitizing herb dryer plans. Our strategic initiatives have required us to devote financial and operational assets to these activities. Our success depends on our ability to appropriately manage our expenses as we execute on our planned initiatives. If we are not able to execute on this strategy successfully, our business may not grow as we anticipate, which could adversely affect our operating results.

We have a history of changing and discontinuing operations and have retained obligations associated with discontinued activities.

We have changed our name and business plan multiple times since our inception in 2007 and have a history of discontinued operations. We have carried liabilities of approximately $60,580 associated with discontinued operations, and there is no guarantee that we will not change our business plan in the future and discontinue current operations.

If we were deemed an investment company under the Investment Company Act, applicable restrictions could have a material adverse effect on our business.

We do not believe that we are an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), because we believe we are covered by the Rule 3a-2 safe harbor promulgated under the Investment Company Act.

Section 3(a)(1)(A) of the Investment Company Act defines the term “investment company” to mean any issuer that “is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities.” Section 3(a)(1)(C) of the Investment Company Act defines “investment company” as any issuer which “is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.” Generally, any issuer meeting the definition of an investment company is subject to all applicable provisions of the Investment Company Act and must register with the Commission under Section 8 of the Investment Company Act, unless it meets the terms and conditions of various exceptions provided by the Investment Company Act including, but not limited to, those provided in Section 3(c) of the Investment Company Act, or in rules adopted by the SEC under the Investment Company Act.

Rule 3a-2 promulgated by the SEC under the Investment Company Act generally provides that, for purposes of Sections 3(a)(1)(A) and 3(a)(1)(C) of the Investment Company Act, an issuer will not be deemed to be engaged in the business of investing, reinvesting, owning, holding or trading in securities for a period not to exceed one year if the issuer has a bona fide intent to be engaged in a non-investment company business. This rule is intended to enable the issuer to make an orderly transition to a non-investment company business during the one-year safe harbor period.

While we previously acquired rights to equity and digital tokens of other companies, with those rights having a value exceeding 40% of our total assets, we determined in September of 2018 that we would focus our operational efforts on developing and launching our sanitizing herb dryer and would no longer engage in the business of acquiring blockchain-related assets. As of January 31, 2019, all of our rights to equity and digital tokens of other companies had been fully impaired and had nominal value pursuant to the relevant accounting guidance, and in May and June of 2019, we rescinded all of our agreements to acquire rights to equity and digital tokens of other companies. As those agreements have been legally rescinded, it is as if we never acquired any rights to equity or digital tokens. As a result, we believe we were never an “investment company” and are covered by the Rule 3a-2 safe harbor.

However, if we were to be deemed an investment company, we would be required to register as an investment company or adjust our business strategy and assets. If we were required to register as an investment company under the Investment Company Act, we would incur substantial expenses associated with such registration, and we would become subject to substantial regulation with respect to our capital structure, management, operations, transactions with affiliated persons, asset composition, including restrictions with respect to diversification and industry concentration, and other matters, which would have a material adverse effect on our business.

If we fail to protect our intellectual property, then our ability to compete could be negatively affected, which would harm our financial condition and operating results.

We have acquired the rights to our sanitizing herb dryer, the dHydronator®, from our CEO, Mr. Romanek, and the herb dryer has received patent protection. There is no guarantee that we will be able to maintain the patent in the future.

We believe that the market for the dHydronator® depends to a significant extent upon the goodwill and patent protection afforded by the patent protection covering the dHydronator®. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The failure to maintain the patent for the dHydronator®, or the loss or infringement of our patent rights would impair the goodwill associated with the dHydronator® and harm our reputation, which would harm our financial condition and operating results.

If our intellectual property is not adequate to provide us with a competitive advantage or to prevent competitors from replicating our products, or if we infringe the intellectual property rights of others, then our financial condition and operating results would be harmed.

Our future success and ability to compete in the herb drying market depends upon our ability to produce a sanitizing herb dryer, which we attempt to protect under a combination of patent and trade secret laws, confidentiality procedures and contractual provisions. However, we have not yet been issued a patent, and even if we are, the legal protections afforded by patent law and contractual proprietary rights in our products provide only limited protection and may be time-consuming and expensive to enforce or maintain. Further, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our proprietary rights or from independently developing non-infringing products that are competitive with, equivalent to or superior to our herb dryer.

Monitoring infringement or misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect every infringement or misappropriation of intellectual property rights. Even if we do detect infringement or misappropriation of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business operations. Further, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.

Additionally, third parties may claim that our herb dryer infringes upon their intellectual property rights, and there can be no assurance that one or more of our products will not be found to infringe upon third-party intellectual property rights in the future.

Our products may be subject to recalls.

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If our sanitizing herb dryer, the dHydronator®, is recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin, or at all. In addition, a product recall may require significant management attention and adversely affect our other operations.

Additionally, if our herb dryer were subject to recall, the goodwill associated with that product and with us could be harmed. A recall would likely lead to decreased demand for our herb dryer, but it could also materially and adversely effect the perception of our company as a whole.

Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies, requiring further management attention and potential legal fees and other expenses. Furthermore, any product recall affecting the cannabis industry more broadly could lead consumers to lose confidence in the safety and security of products sold by other participants in the industry, which could have a material adverse effect on our business, financial condition and results of operations.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Brandon Romanek, our Chief Executive Officer. Although we have entered into an employment agreement with Mr. Romanek providing for certain benefits, including severance in the event of a termination without cause, this agreement does not prevent him from terminating his employment with us at any time. We do not maintain “key person” insurance for any personnel. The loss of the services of Mr. Romanek could impede the achievement of our herb dryer research, development, commercialization and acquisition objectives.

In addition, we rely on consultants and advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We will need additional funding if we intend on executing our operational plans and making future acquisitions. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our planned development.

We expect our expenses to increase in connection with our ongoing activities. Furthermore, upon the effectiveness of this Registration Statement, we expect to incur additional costs associated with operating as a mandatory filer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate some or all of our herb dryer development plans.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or other assets.

Until the time, if ever, that we can generate substantial product revenues, we plan to finance our cash needs through some combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Our common stock is subject to the SEC’s penny stock rules, which may make it difficult for broker-dealers to complete customer transactions and could adversely affect trading activity in our securities.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore our stock is considered a “penny stock” according to SEC rules, unless we are listed on a national securities exchange. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

If required to comply with these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

The market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

Our stock price may experience substantial volatility as a result of a number of factors, including:

Many of these factors are beyond our control. The stock markets in general, and the market for companies related to the cannabis in any way in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance.

We currently have outstanding shares of preferred stock that have special rights that could limit our ability to undertake corporate transactions, inhibit potential changes of control and reduce the proceeds available to our common stockholders in the event of a change in control.

We currently have outstanding two classes of stock, common stock and preferred stock, and there are two series of preferred stock, Series A Preferred Stock and Series B Preferred Stock. The holders of our Series A Preferred Stock are entitled to super voting and super converting rights.

As a result of the rights associated with our Series A Preferred Stock, we may not be able to undertake certain corporate transactions, including equity or debt offerings necessary to raise sufficient capital to run our business, change of control transactions or other transactions that may otherwise be beneficial to our businesses. These provisions may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which our common stockholders might otherwise receive a premium price for their shares. The market price of our common stock could be adversely affected by the rights of our preferred stockholders.

We have never paid and do not intend to pay cash dividends.

We have never paid cash dividends on any of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our common stockholders’ sole source of gain for the foreseeable future. Under the terms of our existing Articles of Incorporation, we cannot declare, pay or set aside any dividends on shares of any class or series of our capital stock, other than dividends on shares of common stock payable in shares of common stock, unless we pay dividends to the holders of our preferred stock. Additionally, without special stockholder and board approvals, we cannot currently pay or declare dividends and will be limited in our ability to do so until such time, if ever, that we are listed on a stock exchange.

Our executive officer and director have the ability to control all matters submitted to stockholders for approval.

Our executive officer and director, Brandon Romanek, holds 200,000 shares of our Series A Preferred Stock (each share votes as the equivalent of 100 shares of common stock on all matters submitted for a vote by the common stockholders), as well as 10,531,632 shares of our common stock, and as such, he would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, Mr. Romanek would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

Provisions in our articles of incorporation and by-laws and under Nevada law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our articles of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable (a “Corporate Transaction”), including transactions in which our common stockholders might otherwise receive a premium price for their shares.

Specifically, our authorized capital stock in our articles of incorporation includes preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued. Issuance of preferred stock with preferential voting rights or economic rights, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive our holders of common stock to purchase common stock at a premium that they might otherwise realize in connection with a proposed acquisition of our company. Similarly, our bylaws generally state that a majority of our board of directors constitute a quorum for the transaction of business and do not require that a larger percentage of our directors constitute a quorum. These provisions in our articles of incorporation and bylaws effectively mean that a simple majority of our board of directors could, without common shareholder approval, designate a class of preferred stock, and issue shares of that class of preferred stock, in a manner that would discourage, delay or prevent a Corporate Transaction from occurring.

These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.

We will incur increased costs as a result of operating as a public reporting company, and our management will be required to devote substantial time to new compliance initiatives.

As a public reporting company, we will incur significant legal, accounting and other expenses that we did not incur as a non-reporting company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

We currently have outstanding, and we may, in the future, issue instruments which are convertible into shares of common stock, which will result in additional dilution to you.

We currently have outstanding debt and equity instruments which are convertible into shares of common stock, and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of common stock, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any offering at a price per share that is equal to or greater than the price per share paid by investors or the then-current market price.

We cannot predict every event and circumstance that may impact our business and, therefore, the risks discussed herein may not be the only ones you should consider.

As we continue to grow our business, we may encounter other risks of which we are not aware as of the date of this Registration Statement. These additional risks may cause serious damage to our business in the future, the impact of which we cannot estimate at this time.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Company does not own any real property.

Item 3. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us, other than as set forth herein.

On or about January 5, 2021, another Company lender, Iliad Research and Trading, L.P. (“Iliad”), sent a demand letter to the Company regarding the Company’s alleged default under its promissory note issued to Iliad. The Company retained litigation counsel in Nevada and responded, and Iliad sued the Company in the fall of 2021 in Utah, where Iliad is domiciled (case no. 210000342 filed in the Third Judicial Court of Salt Lake City, Utah). In December of 2021, the Company was improperly served, Iliad subsequently received a default judgment, and the Company then filed a motion to set aside the judgment, which motion was granted by the court on or about May 9, 2022. The Company vigorously defended the action, and on or about May 31, 2022, removed the case to United States District Court for the District of Utah (case no. 2:22-cv-00367-DAO) (the “Case”). The Company subsequently filed a motion to stay arbitration as demanded by Iliad, and filed an Answer and Counterclaim against Iliad. The case was later remanded back to Utah state court, and the judge ordered the matter to be arbitrated (the “Arbitration”). In 2023, the parties agreed to have Paul Moxley arbitrate the dispute. In the Arbitration, the Company was both defending against Iliad’s claims and pursuing counterclaims against Iliad. The matter was previously scheduled for trial in February 2024.  On January 31, 2024, the Company and Iliad entered into a Settlement Agreement and Mutual Release to fully settle all disputes related to the Case and the Arbitration.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Common Equity

Market Information

The Company’s common stock is quoted on the OTC Link alternative trading system operated by OTC Markets Group, Inc., under the symbol “THCT.” As of July 31, 2023, the Company’s common stock was held by 37 stockholders of record, which does not include stockholders whose shares are held in street or nominee name.

The following chart is indicative of the fluctuations in the stock prices for the fiscal years ended July 31, 2023 and 2022:

__________

Source: www.otcmarkets.com

The Company’s transfer agent is ClearTrust, LLC, 16540 Pointe Village Dr., Suite 205, Lutz, Florida, 33558.

Dividend Distributions

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock for the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy may be modified from time to time by our board of Directors.

Securities authorized for issuance under equity compensation plans

The Company does not have any securities authorized for issuance under equity compensation plans.

Penny Stock

Our common stock is considered “penny stock” under the rules the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

Related Stockholder Matters

None.

Unregistered Sales of Equity Securities During Three Months Ended July 31, 2023

None.

Purchase of Equity Securities

None.

Item 6. Selected Financial Data.

As the Company is a “smaller reporting company,” this item is not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

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-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.

Plan of Operation

THC Therapeutics is focused on the wellness and nutraceutical 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) 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 following summary of our results of operations should be read in conjunction with our audited consolidated financial statements for the years ended July 31, 2023 and 2022, which are included 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 approximately $38.4 million 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 Year Ended July 31, 2023 and 2022:

Our operating results for the year ended July 31, 2023 and 2022, and the changes between those periods for the respective items are summarized as follows:

Revenues

We did not earn any revenues during the fiscal years ending July 31, 2023 and 2022, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our operational strategy and launched sales of our herb dryer product.

Operating Income (Loss)

Our loss from operations decreased by $1,252,116 during the fiscal year ended July 31, 2023, from an operating loss of $1,746,028 for the 2022 fiscal year. The following table presents operating expenses for the 2023 and 2022 fiscal years:

We realized a decrease of $30,401 in professional fees during the fiscal year ended July 31, 2023, as compared to 2022 fiscal year, primarily due to a decrease in legal fees. We also realized a decrease in General and administrative expenses during the fiscal year ended July 31, 2023, as compared to the 2022 fiscal year, primarily due to a decrease in advertising, insurance, and rent expenses. We realized a decrease of $879,363 in consulting fees during the fiscal year ended July 31, 2023, as compared to the 2022 fiscal year, primarily due to a decrease in stock-based compensation. We also realized a decrease of $274,568 in Salaries and wages during the fiscal year ended July 31, 2022, as compared to the 2022 fiscal year, primarily due to a decrease in payroll expenses. 

Other Income (Expense)

The following table presents other income and expenses for the fiscal years ended July 31, 2022 and 2021:

Gain/loss on change in derivative liability decreased by $143,358 during the fiscal year ended July 31, 2023, as compared to the 2022 fiscal year, due to the fluctuations in the price of our common stock between reporting periods. Interest expense decreased by $20,825 during the fiscal year ended July 31, 2023, as compared to the 2022 fiscal year, due to a default on a loan payable in the 2022 fiscal year.

Net Income (loss)

Net loss decreased to $387,036 during the fiscal year ended July 31, 2023, from a net loss of $1,518,929 in the 2022 fiscal year.

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 July 31, 2023 and 2022:

The change in working capital during the year ended July 31, 2023, was primarily due to a decrease in current assets of $39,733 and an increase in current liabilities of $5,955. Current assets decreased due to a decrease in cash, inventory, and prepaid expenses. Current liabilities increased due to an increase in accounts payable and accrued expenses, Cash decreased as of July 31, 2023, by $22 to $10, primarily caused by an decrease in income during the fiscal year ending July 31, 2023.

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 ended July 31, 2023 and 2022:

Cash Flows from Operating Activities

We did not generate positive cash flows from operating activities for the fiscal year ended July 31, 2023.

For the fiscal year ended July 31, 2023, net cash flows used in operating activities consisted of a net loss of $387,036, reduced by depreciation of $1,393, stock-based compensation of $87,170, and a net increase in change of operating assets and liabilities of $398,644, and increased by gain on change in derivative liabilities of $184,143. For the fiscal year ended July 31, 2022, net cash flows used in operating activities consisted of a net loss of $1,518,929, reduced by depreciation of $12,334, stock-based compensation of $836,788, amortization of debt discounts of $14,682, loss on change in derivative liability of $327,501, and increased by a net increase in change of operating assets and liabilities of $563,709.

Cash Flows from Investing Activities

For the fiscal year ended July 31, 2023, no cashflows were used in investing activities. For the fiscal year ended July 31, 2022, no cashflows were used in investing activities.

Cash Flows from Financing Activities

For the fiscal year ended July 31, 2023, we received $36,002 from loans from related party, we received $100,000 from the sale of common stock,  and used $50,592 for net repayments on related party. For the fiscal year ended July 31, 2022, we received $102,881 from loans from related party, we received $147,000 from the sale of common stock, we received $25,000 from the convertible notes payable, and used $54,562 for net repayments on related party debts and $97,500 for the repurchase of the Company’s common stock. 

Anticipated Cash Requirements

We estimate that our expenses to further implement our plan of operations over the next 12 months, will be approximately $3,810,000. This estimate may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources. We further anticipate incurring additional costs and expenses for accounting, legal, and other miscellaneous fees relating to compliance with SEC requirements.

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.

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 U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 3, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in this Form 10, describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

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 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.

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

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

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

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

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

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

Revenue Recognition: 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 January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated statements of operations for the years ended July 31, 2022 and 2021 as a result of applying Topic 606.

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.

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.

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.

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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As the Company is a “smaller reporting company,” this item is inapplicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

THC Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of THC Therapeutics, Inc. (the Company), as of July 31, 2023 and 2022, and the related consolidated statements of operations, statements of stockholders’ deficit, and cash flows for each of the two years then ended, and the related notes and schedules (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United Sates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we were required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. According we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluation of the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Going Concern Uncertainty

As shown in the financial statements, the Company incurred net loss of $387,036 during the year ended July 31, 2023 and accumulated losses of $38,423,945. These factors create an uncertainty as to the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the success of raising additional capital through the issuance of common stock and the ability to generate sufficient operating revenue. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Emphasis of Matters-Risks and Uncertainties

The Company is not able to predict the ultimate impact that COVID -19 will have on its business. However, if the current economic conditions continue, the pandemic could have an adverse impact on the economies and

financial markets of many countries, including the geographical area in which the Company plans to operate.

Item 8. Consolidated Financial Statements and Supplementary Data.

THC THERAPEUTICS INC.  

CONSOLIDATED BALANCE SHEETS

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

THC THERAPEUTICS INC.

CONSOLIDATED STATEMENT OF OPERATIONS

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

THC THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

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

THC THERAPEUTICS INC.  

CONSOLIDATED STATEMENT OF CASHFLOWS

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

THC THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS