UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

THC THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

26-0164981

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)

 

11700 W Charleston Blvd #73

Las Vegas, Nevada

 

89135

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: ( 702) 602-8422

 

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

 

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

 

Common Stock, $0.001 par value

(Title of Class)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Non-accelerated filer

¨

Accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

 

 
 
 
 

  TABLE OF CONTENTS

 

 

Page

 

EXPLANATORY NOTE

 

3

 

FORWARD-LOOKING STATEMENTS

 

3

 

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

 

3

 

Item 1.

Business.

 

4

 

Item 1A.

Risk Factors.

 

9

 

Item 2.

Financial Information.

 

14

 

Item 3.

Properties.

 

24

 

Item 4.

Security Ownership of Certain Beneficial Owners and Management.

 

24

 

Item 5.

Directors and Executive Officers.

 

25

 

Item 6.

Executive Compensation.

 

27

 

Item 7.

Certain Relationships and Related Transactions, and Director Independence.

 

28

 

Item 8.

Legal Proceedings.

 

29

 

Item 9.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

30

 

Item 10.

Recent Sales of Unregistered Securities.

 

30

 

Item 11.

Description of Registrant’s Securities to be Registered.

 

32

 

Item 12.

Indemnification of Directors and Officers.

 

33

 

Item 13.

Financial Statements and Supplementary Data.  

 

34

 

Item 14.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

34

 

Item 15.

Financial Statements and Exhibits.

 

34

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

F-2

 

BALANCE SHEET

 

F-3

 

STATEMENT OF OPERATIONS

 

F-4

 

STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

F-5

 

STATEMENT OF CASH FLOWS

 

F-6

 

NOTES TO FINANCIAL STATEMENTS

 

F-7

 

SIGNATURES

 

35

 

EXHIBIT INDEX

 

36

 

 
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EXPLANATORY NOTE

 

THC Therapeutics, Inc. (formerly known as Millennium BlockChain Inc.) is filing this General Form for Registration of Securities on Form 10, which we refer to as the Registration Statement, to register its common stock, par value $0.001 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. Unless otherwise mentioned or unless the context requires otherwise, when used in this Registration Statement, the terms “THC Therapeutics,” “Company,” “we,” “us,” and “our” refer to THC Therapeutics, Inc. (formerly known as Millennium BlockChain Inc.).

 

FORWARD-LOOKING STATEMENTS

 

This Registration Statement contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Registration Statement, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important cautionary statements in this Registration Statement, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this Registration Statement and the documents that we have filed as exhibits to this Registration Statement with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Registration Statement are made as of the date of this Registration Statement, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

 

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

 

When this Registration Statement becomes effective, we will begin to file reports, proxy statements, information statements and other information with the United States Securities and Exchange Commission (the “SEC”). You may read and copy this information, for a copying fee, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval services, and at the website maintained by the SEC at http://www.sec.gov.

 

Our Internet website address is http://www.thctherapeutics.com. Information contained on the website does not constitute part of this Registration Statement. We have included our website address in this Registration Statement solely as an inactive textual reference. When this Registration Statement is effective, we will make available, through a link to the SEC’s website, electronic copies of the materials we file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports filed by our executive officers, directors and 10% stockholders and amendments to those reports.

 

 
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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 primarily focused on developing a sanitizing herb dryer, the dHydronator®, which has been specifically designed for drying and sanitizing 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 primarily focused on operations in the wellness industry. The Company is developing a sanitizing herb dryer, the dHydronator®, with multiple design, function, and usage patents pending. This innovative, laboratory-proven product is specifically designed for drying and sanitizing 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.

 

Previously, the Company had also been focused on seeking partnerships and investments in the blockchain technology industry, and making strategic investments in the equity of target companies and their tokens. In September of 2018, the Company assessed the current regulatory environment regarding companies focused on investing in cryptocurrencies and other digital assets, as well as the progress of the Company’s 20 separate patent claims for the Company’s sanitizing herb dryer, and the Company determined that it would refocus its efforts on developing the Company’s dHydronator sanitizing herb dryer.

 

Wellness Operations

 

THC Therapeutics is focused on the wellness industry, with plans to develop a patent-pending 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 pending. This innovative, laboratory-proven product is specifically designed for drying and sanitizing 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 Company has a functioning prototype of the dHydronator® similar in design to that shown below, and if the Company is issued a patent by the United States Patent and Trademark Office (see “Patent, Trademark, License & Franchise Restrictions and Contractual Obligations & Concessions” below), and if 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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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.

 

Legacy Crypto-Related Assets

 

The Company had previously focused some of its efforts on seeking partnerships with blockchain technology companies (each a “Target Company”). During calendar 2018, the Company issued shares of its common stock and preferred stock to two Target Companies (see “ BurstIQ ” and “ ImpactPPA ” below) in exchange for rights to tokens and equity purchase rights in the Target Companies.

 

BurstIQ

 

BurstIQ Analytics Corporation (“BurstIQ”) is a healthcare blockchain data company serving major healthcare institutions, OEM data partners, unions, government agencies and sovereign nations. Healthcare data lives in siloed IT environments to comply with and HIPAA regulations, while valuable and necessary, the segregation of data makes it extremely hard to combine and share data sources. Data is becoming increasingly critical to the healthcare industry and to the ecosystem of companies that rely on accurate date. BurstIQ is seeking to solve this market problem. The BurstIQ platform leverages blockchain and machine intelligence to enable data from disparate sources to be brought together to create a single, unified data repository, and to be shared quickly and easily while still maintaining strict security standards and HIPAA compliance.

 

On or about April 19, 2018, the Company acquired (i) the right to a number of BurstIQ’s BIQ tokens equal to $2.5 million divided by a 35% discount to the maximum price per token sold by BurstIQ during its network launch, and (ii) the right to a number of shares of BurstIQ’s preferred stock which will be sold in a subsequent equity financing equal to $2.5 million divided by a $6.50 price per share, or approximately 384,615 shares of preferred stock, in consideration of the issuance of 5,000,000 shares of the Company’s common stock to BurstIQ. Based upon the investment criteria, we expect to own a 2.96% equity stake in BurstIQ along with the BIQ tokens.

 

 
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ImpactPPA

 

ImpactPPA Limited (“ImpactPPA”) has designed an Ethereum-based decentralized energy platform to potentially transform the global energy finance industry. ImpactPPA uses the power of the blockchain to bring together capital and consumers in a way that is direct, responsive, and expedient. ImpactPPA seeks to solve the problems created by legacy financial institutions which are hindered by bureaucracy, cost and inflated infrastructure to effectively and efficiently provide solutions to the market.

 

ImpactPPA uses a token model for financing projects, which provides the token-holding community a voice in deciding which projects should be funded. The goal of the Company is to achieve “Impact Equilibrium,” a financial state at which revenues from implemented PPAs flow back into the system, creating a pool of capital that is used to fund future projects. The SmartPPA (Power Purchase Agreement) is the core of the platform allowing anyone, anywhere to create a proposal for a project of any size or technology. Using the SmartPPA platform, a user specifies the requirements for a project and submits it to the ImpactPPA community, whether it is an individual business who wants reliable energy to keep a factory running or a nation seeking to provide power to its people. By using blockchain and smart contract technology, ImpactPPA’s goal is to open the bottleneck to energy financing created by NGOs and government agencies.

 

On or about June 14, 2018, the Company acquired the rights to $4,500,000 of ImpactPPA’s MPQ tokens in consideration of the Company’s issuance of 60,000 shares of the Company’s Series A Preferred Stock to ImpactPPA (with each share of Series A Preferred Stock convertible into 100 shares of the Company’s common stock at the holder’s election). At the time of ImpactPPA’s network launch, the Company will receive $3,000,000 of MPQ tokens, three months after the launch, the Company will be issued an additional $750,000 in tokens, and six months after the launch, the Company will receive the other $750,000 in tokens.

 

Robot Cache

 

Robot Cache, S.L. (“Robot Cache”) has is the first decentralized PC video game distribution platform with a revolutionary digital resale model utilizing the blockchain. Robot Cache allows publishers to keep significantly more revenues than other distribution platforms and gives gamers, for the first time ever, the ability to re-sell their digital games. Founded by video game legend Brian Fargo, Robot Cache is led by video game luminaries such as Lee Jacobson (CEO), Mark Caldwell (CTO), Laura Naviaux Sturr (CMO) and Philippe Erwin (GC & VP of Business Development).

 

Utilizing Blockchain technology, Robot Cache plans to reduce the fees publishers and developers pay by 80% and allow gamers to resell their digital PC video games. Developers and publishers should benefit from the lowest transaction fees of any digital PC video game distribution platform. Gamers should benefit from Robot Cache's distribution approach. Currently, gamers can only resell physical retail copies of a video game, but once the Robot Cache platform launches, gamers will have the option to resell their digital games purchased on the Robot Cache platform and retain 25% of the proceeds in IRON, which is Robot Cache's digital token. In addition, it is anticipated that gamers will be able to opt-in to mine and exchange IRON. IRON can be used toward the purchase of games on the platform.

 

 
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On July 31, 2018, the Company (i) acquired the rights to 10,536,315 IRON cryptographic tokens from Robot Cache, and (ii) a right of first refusal to purchase up to 3% of the capital stock of Robot Cache in a subsequent equity financing, in consideration of the Company’s issuance of 6,000,000 shares of the Company’s common stock to Robot Cache, and non-cashless warrants to purchase 3,000,000 shares of the Company’s common stock on the below-described terms (the “Warrants”). The Warrants are exercisable through the earlier of July 31, 2021, and the date that is 30 days after the date that the 5-day volume-weighted average price of the Company’s common stock exceeds the exercise price for the Warrants by 25%. The exercise price for the Warrants is staggered as follows: 500,000 shares at $0.75/share, 500,000 shares at $1.00/share, 500,000 shares at $1.50/share, 500,000 shares at $2.00/share, and 1,000,000 shares at $5.00/share.

 

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.

 

 
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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, 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. A trademark application for the mark “dHyrdonator” has been filed (serial no. 86874611), and a patent application has been 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.

 

Governmental Regulations

 

We will be governed by government laws and regulations governing spas. 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 only one full-time management employee, our founder, CEO and director, Brandon Romanek, and no other full-time employees.

 

 
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Item 1A. Risk Factors.

 

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, 2017 and 2016, or the interim periods since July 31, 2017. 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 April 30, 2018, we had an accumulated deficit of approximately $3.9 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 30 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 8 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.

 

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

 

Beginning in early 2018, based on the historical experience of our sole officer and director trading commodities, we made a strategic decision to focus on acquiring crypto-related assets. In September 2018, we determined to focus on our sanitizing herb dryer and floatation spa 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 plan to hold investments in various entities and in cryptocurrency or digital tokens, but we may never actually acquire those investments.

 

We currently have the rights to acquire equity and digital tokens of BurstIQ and ImpactPPA. However, there is no guarantee that we will ever actually receive the equity and digital tokens of either company. If we are not able to do so, the rights that we have acquired would essentially be worthless, and our business would be harmed.

 

 
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We plan to hold investments in various entities and in cryptocurrency or digital tokens, which we may never be able to sell, and which are subject to impairment.

 

Even if we acquire the equity and digital tokens of BurstIQ and ImpactPPA described above, there is no guarantee that these assets will maintain and/or increase in value, or that we will be able to liquidate these assets for a profit or at all. Our inability or failure to liquidate any such assets could have a material adverse impact on our business and financial position. Our assets could become impaired in the future. Cryptocurrencies and digital tokens are an emerging technology, are currently unregulated, have no investor protections, and their value may become extremely volatile or even worthless. Future impairment of our anticipated equity and token holdings could have an adverse impact on our balance sheet as it relates to the value of these assets.

 

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 a patent application has been filed with the United States Patent and Trademark Office (“USPTO”), docket number 5503.101, for 20 separate 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. There is no guarantee that the USPTO will issue the patent, or that if we are issued the patent, that we will be able to maintain the patent in the future.

 

We believe that the market for the dHydronator® depend to a significant extent upon the goodwill and patent protection afforded by any patent that is ultimately issued. 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 secure a patent, the failure to maintain any patent we are ultimately issued, or the loss or infringement of any patent we are issued 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.

 

 
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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 our spa as well and 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 and spa 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 and spa 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.

 

 
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Because we will become a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

 

Because we will not become a reporting company by conducting an underwritten initial public offering, or IPO, of our common stock, and because we will not be listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we were to become a public reporting company by means of an IPO because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development.

 

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:

 

 

·

make a special written suitability determination for the purchaser;

 

·

receive the purchaser’s prior written agreement to the transaction;

 

·

provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and

 

·

obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.

 

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:

 

 

·

sales or potential sales of substantial amounts of our common stock;

 

·

the success of competitive products or technologies;

 

·

announcements about us or about our competitors, including new product introductions and commercial results;

 

·

the recruitment or departure of key personnel;

 

·

developments concerning our licensors or manufacturers;

 

·

litigation and other developments;

 

·

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

·

variations in our financial results or those of companies that are perceived to be similar to us; and

 

·

general economic, industry and market conditions.

 

Many of these factors are beyond our control. The stock markets in general, and the market for companies related to the cannabis and blockchain markets 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.

 

 
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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. Additionally, even after our preferred stock converts to common stock, certain of our stockholders will have rights that could limit our ability to undertake corporation transactions and inhibit changes of 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 the holder of our Series A Preferred Stock has, 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 2,000,000 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), 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, respectively, 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. 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.

 

 
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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 2. Financial Information.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing at the end of this Registration Statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this Registration Statement, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Registration Statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

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 pending. This innovative, laboratory-proven product is specifically designed for drying and sanitizing 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 Company also 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.

 

 
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Results of Operations

 

The following summary of our results of operations should be read in conjunction with our unaudited consolidated financial statements for the three and nine months ended April 30, 2018 and 2017, which are included herein.

 

Three Months Ended April 30, 2018 and 2017

 

Our operating results for the three months ended April 30, 2018 and 2017, and the changes between those periods for the respective items are summarized as follows:

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percentage

 

Operating income (loss)

 

$ (226,602 )

 

$ (47,064 )

 

$ (179,538 )

 

 

(381 %)

Other income (expense)

 

$ (17,456 )

 

$ 14,562

 

 

$ (32,018 )

 

 

(220 %)

Net income (loss)

 

$ (244,058 )

 

$ (32,502 )

 

$ (211,556 )

 

 

(651 %)

 

Revenues

 

We did not earn any revenues during the three months ended April 30, 2018 and 2017, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our investment strategy.

 

Operating Income (Loss)

 

Our loss from operations increased to $226,602 during the three months ended April 30, 2018, from an operating loss of $47,064 in the same period in 2017. The following table presents operating expenses for the quarterly periods in 2018 and 2017:

 

 

 

Three months ended 

 

 

 

 

 

 

April 30, 

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount 

 

 

Percentage

 

Professional fees

 

$ 23,192

 

 

$ 17,115

 

 

$ 6,077

 

 

 

36 %

Consulting fees

 

 

135,486

 

 

 

4,100

 

 

 

131,386

 

 

 

3205 %

Payroll expense

 

 

20,569

 

 

 

-

 

 

 

20,569

 

 

 

100 %

General and administrative expenses

 

 

41,142

 

 

 

22,680

 

 

 

18,462

 

 

 

81 %

Depreciation and amortization

 

 

6,213

 

 

 

3,169

 

 

 

3,044

 

 

 

96 %

Total operating expenses

 

$ 226,602

 

 

$ 47,064

 

 

$ 179,538

 

 

 

381 %

 

We realized an increase of $6,077 in professional fees during the three months ended April 30, 2018, as compared to the same period in 2017, primarily due to increased accounting and audit fees associated with our reporting obligations. We realized an increase of $131,386 in consulting fees during the three months ended April 30, 2018, as compared to the same period in 2017, primarily due to increased stock-based compensation expense. We realized an increase of $18,462 in general and administrative expenses during the three months ended April 30, 2018, as compared to the same period in 2017, primarily due to an increase in office expenses related to our increased operations in 2018. We realized an increase of $20,569 in payroll expenses during the three months ended April 30, 2018, as compared to the same period in 2017, primarily due to the employment agreement entered into with to our Chief Executive Officer in November of 2017. We realized an increase of $3,044 in depreciation expenses during the three months ended April 30, 2018, as compared to the same period in 2017, primarily due to increase in assets related to the acquisition of the assets of the float spa.

 

 
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Other Income (Expense)

 

The following table presents other income and expenses for the three months ended April 30, 2017 and 2016:

 

 

 

Three months ended

 

 

 

 

 

 

 

 

April30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percentage

 

Gain/(loss) on change in derivative liability

 

$ 11,273

 

 

$ (162 )

 

$ 11,435

 

 

 

7,059 %

Gain on settlement of debts

 

 

-

 

 

 

122,839

 

 

 

(122,839 )

 

 

(100 )%

Gain on conveyance of liabilities to a related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Interest Expense

 

 

(28,729 )

 

 

(108,115 )

 

 

79,386

 

 

 

73 %

Total other income (expense)

 

$ (17,456 )

 

$ 14,562

 

 

$ (32,018 )

 

 

(220 )%

 

Gain/(loss) on change in derivative liability increased by $11,435 during the three months ended April 30, 2018, as compared to the same period in 2017, due to change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Gain on settlement of debts decreased by $122,839 during the three months ended April 30, 2018, as compared to the same period in 2017, because the company didn’t settle any debts in the current period. Interest expense decreased by $79,386 during the three months ended April 30, 2018, as compared to the same period in 2017, due to decrease in outstanding loans, and convertible notes during the same period.

 

Net Income (loss)

 

Net loss increased to $(244,058) during the three months ended April 30, 2018, from a net loss of $(32,502) in the same period 2017.

 

Nine Months Ended April 30, 2018 and 2017

 

Our operating results for the nine months ended April 30, 2018 and 2017, and the changes between those periods for the respective items are summarized as follows:

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percentage

 

Operating income (loss)

 

$ (472,317 )

 

$ (83,306 )

 

$ (389,011 )

 

 

(467 )%

Other income (expense)

 

$ (181,582 )

 

$ 147,385

 

 

$ (328,967 )

 

 

(223 )%

Net income (loss)

 

$ (653,899 )

 

$ 64,079

 

 

$ (717,978 )

 

 

(1120 )%

 

Revenues

 

We did not earn any revenues during the nine months April 30, 2018 and 2017, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our business and investment strategy.

 

Operating Income (Loss)

 

Our loss from operations increased to $472,317 during the nine months ended April 30, 2018, from an operating loss of $83,306 in the same period in 2017. The following table presents operating expenses for the quarterly periods in 2018 and 2017:

 

 

 

Nine months ended

 

 

 

 

 

 

April 30, 

 

 

Change

 

 

 

2018

 

 

2017 

 

 

Amount 

 

 

Percentage

 

Professional fees

 

$ 46,336

 

 

$ 24,126

 

 

$ 22,210

 

 

 

92 %

Consulting fees

 

 

257,641

 

 

 

22,162

 

 

 

235,479

 

 

 

1063 %

Payroll expense

 

 

41,137

 

 

 

-

 

 

 

41,137

 

 

 

100 %

General and administrative expenses

 

 

108,191

 

 

 

32,594

 

 

 

75,597

 

 

 

232 %

Depreciation and amortization

 

 

19,012

 

 

 

4,424

 

 

 

14,588

 

 

 

330 %

Total operating expenses

 

$ 472,317

 

 

$ 83,306

 

 

$ 389,011

 

 

 

467 %

 

 
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We realized an increase of $22,210 in professional fees during the nine months ended April 30, 2018, as compared to the same period in 2017, primarily due to increased accounting and audit fees associated with our reporting obligations. We realized an increase of $235,479 in consulting fees during the nine months ended April 30, 2018, as compared to the same period in 2017, primarily due to increased stock-based consulting. We realized an increase of $75,597 in general and administrative expenses during the nine months ended April 30, 2018, as compared to the same period in 2017, primarily due to an increase in office expenses related to our increased operational activities. We realized an increase of $41,137 in payroll expenses during the nine months ended April 30, 2018, as compared to the same period in 2017, primarily due to the employment agreement issued to our Chief Executive Officer in November of 2017. We realized an increase of $14,588 in depreciation expenses during the nine months ended April 30, 2018, as compared to the same period in 2017, primarily due to increase in assets related to the acquisition of the assets of THC therapeutics and the float spa assets.

 

Other Income (Expense)

 

The following table presents other income and expenses for the nine months ended April 30, 2018 and 2017:

 

 

 

Nine months ended

 

 

 

 

 

 

 

April 30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percentage

 

Gain on change in derivative liability

 

$ 39,274

 

 

$ 4,701

 

 

$ 34,573

 

 

 

735 %

Gain on settlement of debts

 

 

(132,234 )

 

 

202,621

 

 

 

(334,855 )

 

 

(165 )%

Gain on conveyance of liabilities to a related party

 

 

-

 

 

 

79,110

 

 

 

(79,110 )

 

 

(100 )%

Interest Expense

 

 

(88,622 )

 

 

(139,047 )

 

 

50,425

 

 

 

36 %

Total other income (expense)

 

$ (181,582 )

 

$ 147,385

 

 

$ (328,967 )

 

 

(223 )%

 

Gain on change in derivative liability increased by $34,573 during the nine months ended April 30, 2018, as compared to the same period in 2017, due to change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Gain on settlement of debts decreased by $334,855 during the nine months ended April 30, 2018, as compared to the same period in 2017, because the company recognized losses on debt settlements in the current period as opposed to gains in the same period in 2017. Gain on conveyance of liabilities to a related party decreased by $79,110 during the nine months ended April 30, 2018, as compared to the same period in 2017, because the company didn’t convey any asset or liabilities to officers in the current period. Interest expense decreased by $50,425 during the nine months ended April 30, 2018, as compared to the same period in 2017, due to decreases in total loans, and convertible notes outstanding in the current period.

 

Net Income (loss)

 

Net loss increased to $(653,899) during the nine months ended April 30, 2018, from a net income of $64,079 in the same period 2017.

 

Liquidity and Capital Resources

 

Working Capital

 

The following table presents our working capital position as of April 30, 2018, and July 31, 2017:

 

 

 

April 30,

 

 

July 31,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percentage

 

Cash and cash equivalents

 

$ 2,237

 

 

$ 187

 

 

$ 2,050

 

 

 

1,096 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$ 12,449

 

 

$ 78,952

 

 

$ (66,503 )

 

 

(84 %)

Current liabilities

 

 

548,829

 

 

 

389,515

 

 

 

159,314

 

 

 

40 %

Working capital

 

$ (536,380 )

 

$ (310,563 )

 

$ (225,817 )

 

 

(73 %)

 

 
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The change in working capital during the nine months ended April 30, 2018, was primarily due to an increase in current liabilities of $159,314. Current assets decreased due to a decrease in prepaid expenses during the nine months ended April 30, 2018. Current liabilities increased due to an increase in borrowing and accrued expenses, which resulted in accounts payable of $103,345, accrued liabilities due to related parties of $46,004, convertible notes payable, net of $97,534, advances from related parties of $146,791, notes payable of $48,200 and derivative liability of $106,955, as compared to $389,515 in current liabilities as of July 31, 2017, which consisted mainly of accounts payable of $82,140, accrued liabilities due to related parties of $1,120, convertible notes payable, net of $22,739, advances from related parties of $77,287, notes payable of $60,000 and derivative liability of $146,229.

 

Cash increased as of April 30, 2018, by $2,050 to $2,237, primarily from increased borrowing.

 

Cash Flow

 

We fund our operations with cash received from advances from officer’s parties, debt, and issuances of equity.

 

The following tables presents our cash flow for the nine months ended April 30, 2018 and 2017:

 

 

 

Nine months ended

 

 

 

 

 

 

April 30,

 

 

Change 2018

 

 

 

2018

 

 

2017

 

 

Versus 2017

 

Cash Flows Used in Operating Activities

 

$ (150,122 )

 

$ (109,224 )

 

$ (40,898 )

Cash Flows Used in Investing Activities

 

 

(532 )

 

 

-

 

 

 

(532 )

Cash Flows Provided by Financing Activities

 

 

152,704

 

 

 

108,986

 

 

 

43,718

 

Net increase (decrease) in Cash During Period

 

$ 2,050

 

 

$ (238 )

 

$ 2,288

 

 

Cash Flows from Operating Activities

 

We did not generate positive cash flows from operating activities for the nine months ended April 30, 2017.

 

For the nine months ended April 30, 2018, net cash flows used in operating activities consisted of a net loss of $653,899, reduced by depreciation of $19,012, stock-based compensation of $242,119, amortization of debt discount of $69,185, amortization of original issue discount of $5,610, offset by a loss on change in derivative liabilities of $39,274 and increased by a net increase in change of operating assets and liabilities of $72,770. For the nine months ended April 30, 2017, net cash flows provided by operating activities consisted of a net income of $64,079, increased by depreciation of $4,424, amortization of debt discount of $132,221, offset by a loss on change in derivative liabilities of $4,701, settlement of debts of $202,621, settlement of related party debts of $79,110 and by a net decrease in change of operating assets and liabilities of $23,516.

 

Cash Flows from Investing Activities

 

For the nine months ended April 30, 2018, net cash flows used in investing activities consisted of $532 investment in intangible assets as compared to the nine months ending April 30, 2017, during which we had no investing activities.

 

Cash Flows from Financing Activities

 

For the nine months ended April 30, 2018, we received $142,344 from loans from a related party, $30,000 from non-related party loans, $65,000 from the sale of common stock and warrants and used $72,840 for net repayments on related party debts and $11,800 on net repayments on loans. For the nine months ended April 30, 2017, we received $75,371 from loans from a related party, $112,400 from convertible loans, and used $28,785 for net repayments on related party debts and $50,000 on net repayments on loans

 

 
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Year Ended July 31, 2017 and 2016

 

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended July 31, 2017 and 2016, which are included herein.

 

Our operating results for the year ended July 31, 2017 and 2016, and the changes between those periods for the respective items are summarized as follows:

 

 

 

Years ended

 

 

 

 

 

 

 

 

 

July 31,

 

 

Change

 

 

 

2017

 

 

2016

 

 

Amount

 

 

Percentage

 

Operating income (loss)

 

$ (223,605 )

 

$ (103,533 )

 

$ (120,072 )

 

 

(116 )%

Other income (expense)

 

$ (162,103 )

 

$ (191,464 )

 

$ 29,361

 

 

 

15 %

Net income (loss)

 

$ (385,708 )

 

$ (294,997 )

 

$ (90,711 )

 

 

(31 )%

 

Revenues

 

We did not earn any revenues during the years ending July 31, 2017 and 2016, respectively. We do not anticipate earning significant revenues until such time that we have fully developed our investment strategy.

 

Operating Income (Loss)

 

Our loss from operations increased by $120,072 during the year ended July 31, 2017, from an operating loss of $103,533 in the same period in 2016. The following table presents operating expenses for the annual periods in 2017 and 2016:

 

 

 

Years ended 

 

 

 

 

 

 

 

 

 

July 31, 

 

 

Change

 

 

 

2017

 

 

2016

 

 

Amount

 

 

Percentage

 

Professional fees

 

$ 90,168

 

 

$ 20,526

 

 

$ 69,642

 

 

 

339 %

Compensation

 

 

5,490

 

 

 

-

 

 

 

5,490

 

 

 

100 %

Consulting fees

 

 

39,173

 

 

 

67,925

 

 

 

(28,752 )

 

 

(42 )%

General and administrative expenses

 

 

78,283

 

 

 

15,082

 

 

 

63,201

 

 

 

419 %

Depreciation and amortization

 

 

10,491

 

 

 

-

 

 

 

10,491

 

 

 

100 %

Total operating expenses

 

$ 223,605

 

 

$ 103,533

 

 

$ 120,072

 

 

 

116 %

 

We realized an increase of $69,642 in professional fees during the year ended July 31, 2017, as compared to the same period in 2016, primarily due to increased accounting and audit fees associated with our reporting obligations. We realized a decrease of $28,752 in consulting fees during the year ended July 31, 2017, as compared to the same period in 2016, primarily due to a decrease in stock-based compensation. We realized an increase of $63,201 in general and administrative expenses during the year ended July 31, 2017, as compared to the same period in 2018, primarily due to an increase in travel expenses related to trade show attendance. We realized an increase of $10,491 in depreciation expenses during year ended July 31, 2017, as compared to the same period in 2016, primarily due to increase in assets related to the acquisition of the assets of THC Therapeutics.

 

Other Income (Expense)

 

The following table presents other income and expenses for the years ended July 31, 2017 and 2016:

 

 

 

Years ended

July 31,

 

 

Change

 

 

 

 2017

 

 

2016

 

 

Amount

 

 

Percentage

 

Gain/(loss) on change in derivative liability

 

$ (81,145 )

 

$ 2,454

 

 

$ (83,599 )

 

(3,407)

Gain/(loss) on settlement of debts

 

 

202,621

 

 

 

(162,235 )

 

 

364,856

 

 

 

225 %

Impairment expense

 

 

(197,761 )

 

 

-

 

 

 

(197,761 )

 

 

100 %

Gain on conveyance of liabilities to a related party

 

 

79,110

 

 

 

-

 

 

 

79,110

 

 

 

100 %

Interest Expense

 

 

(164,928 )

 

 

(31,683 )

 

 

(133,245 )

 

 

(421 )%

Total other income (expense)

 

$ (162,103 )

 

$ (191,464 )

 

$ 29,361

 

 

 

15 %

 

 
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Loss on change in derivative liability increased by $83,599 during the years ended July 31, 2017, as compared to the same period in 2016, due to change in derivative liabilities caused by fluctuations in the price of our common stock between reporting periods. Gain on settlement of debts increased by $364,856 during the year ended July 31, 2017, as compared to the same period in 2016, because the company settled a significant amount of debts as part of its restructuring efforts. Gain on conveyance of liabilities to a related party increased by $79,110 during the year ended July 31, 2017, as compared to the same period in 2016, because the company conveyed certain liabilities to a former officer. Interest expense increased by $133,245 during the year ended July 31, 2017, as compared to the same period in 2016, due to increases in loans, and convertible notes. The Company also recorded an impairment expense of $197,761 due to the impairment of intangible assets related to the THC business segment.

 

Net Income (loss)

 

Net loss increased to $(385,708) during the year ended July 31, 2017, from a net loss of $(294,997) in the same period 2016.

 

Liquidity and Capital Resources

 

Working Capital

 

The following table presents our working capital position as of July 31, 2017, and July 31, 2016:

 

 

 

July 31,

 

 

July 31,

 

 

Change

 

 

 

2017

 

 

2016

 

 

Amount

 

 

Percentage

 

Cash and cash equivalents

 

$ 187

 

 

$ 245

 

 

$ (58 )

 

 

(24 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$ 78,952

 

 

$ 245

 

 

$ 78,707

 

 

 

32,125 %

Current liabilities

 

 

389,515

 

 

 

377,952

 

 

 

11,563

 

 

 

3 %

Working capital

 

$ (310,563 )

 

$ (377,707 )

 

$ 67,144

 

 

 

18 %

 

The change in working capital during the year ended July 31, 2017, was primarily due to an increase in current assets of $78,707 and an increase in current liabilities of $11,563. Current assets increased due to an increase in prepaid expenses as of July 31, 2017. Current liabilities increased due to an increase in borrowing, which resulted in convertible notes payable, advances from related parties, notes payable, derivative liability of $389,515, as compared to $377,952 as of July 31, 2017. Cash decreased as of July 31, 2017, by $(58) to $187, primarily caused by from increased expenses for the year ending July 31, 2017.

 

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 years ended July 31, 2017 and 2016:

 

 

 

Years ended

 

 

 

 

 

 

July 31,

 

 

Change 2017

 

 

 

2017

 

 

2016

 

 

Versus 2016

 

Cash Flows Provided from (Used in) Operating Activities

 

$ (151,671 )

 

$ (17,367 )

 

$ (134,304 )

Cash Flows Used in Investing Activities

 

 

(25,062 )

 

 

-

 

 

 

(25,062 )

Cash Flows Provided by Financing Activities

 

 

176,675

 

 

 

11,144

 

 

 

165,531

 

Net increase (decrease) in Cash During Period

 

$ (58 )

 

$ (6,223 )

 

$ 6,165

 

 

 
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Cash Flows from Operating Activities

 

We did not generate positive cash flows from operating activities for the year ended July 31, 2017.

 

For the years ended July 31, 2017, net cash flows used in operating activities consisted of a net loss of $385,708, reduced by depreciation of $10,491, stock-based compensation of $46,377, amortization of debt discount of $155,820, offset by a loss on change in derivative liabilities of $81,145, gain on settlement of debts of $197,761, loss on impairment of assets of $197,761, gain on conveyance of liabilities or $(79,110) and increased by a net increase in change of operating assets and liabilities of $18,656. For the year ended July 31, 2016, net cash flows provided by operating activities consisted of a net loss of $294,997, reduced by amortization of debt discount of $19,221, offset by a loss on change in derivative liabilities of $2,488, settlement of debts of $162,269, and by a net increase on change of operating assets and liabilities of $98,628.

 

Cash Flows from Investing Activities

 

For the year ended July 31, 2017, net cashflows used in investing activities consisted of purchases of intangible assets of $5,062 and purchase of fixed assets of $20,000. For the year ending in July 31, 2016, we had no investing activities.

 

Cash Flows from Financing Activities

 

For the year ended July 31, 2017, we received $134,113 from loans from related party, $92,500 from convertible notes and used $49,938 for net repayments on related party debts. For the year ended July 31, 2016, we received $11,144 from loans from related party.

 

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 as described in the table below. These estimates 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 and the filing of the registration statement of which this prospectus forms a part.

 

Description

 

Estimated

Expenses

 

Legal, Accounting & Other Registration Expenses

 

$ 200,000

 

Costs Associated with Being a Public Company

 

 

200,000

 

Trade Shows and Travel

 

 

400,000

 

Website Development

 

 

120,000

 

Rent

 

 

70,000

 

Advertising and Marketing

 

 

750,000

 

Staffing

 

 

770,000

 

General Working Capital

 

 

800,000

 

Cash Reserves

 

 

500,000

 

Total

 

$

3,810,000

 

 

Given that our cash needs are strongly driven by our growth requirements, we also intend to maintain a reserve sum for other risk contingencies that may arise.

 

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.

 

 
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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.

 

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

 

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

 

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

 

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

 

Revenue Recognition :

 

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.

 

 
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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 3. Properties.

 

Currently the Company leases approximately 1,300 square feet of office space in San Diego, California, at a monthly rent of $3,300, on a month-to-month basis and including all utilities. There is no obligation for the landlord to continue to lease the Company the office space on the same terms.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

The following tables set forth, as of April 30, 2018, certain information concerning the beneficial ownership of our capital stock, including our common stock, and Series A Preferred Stock, and Series B Preferred Stock, by:

 

 

·

each stockholder known by us to own beneficially 5% or more of any class of our outstanding stock;

 

·

each director;

 

·

each named executive officer;

 

·

all of our executive officers and directors as a group; and

 

·

each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of any class of our outstanding stock.

 

As of April 30, 2018, the Company had authorized 500,000,000 shares of common stock and 10,000,000 shares of preferred stock, with 3,000,000 shares of preferred stock designated as Series A Preferred Stock, and 165,000 shares of preferred stock designated as Series B Preferred Stock. There were 123,985,891 shares of common stock, 2,000,000 shares of Series A Preferred Stock, and 165,000 shares of Series B Preferred Stock outstanding as of April 30, 2018. Each share of Series A Preferred Stock is convertible into 100 shares of common stock, and each share entitles the holder thereof to 100 votes per share. Each share of Series B Preferred Stock is convertible one year following issuance at a variable conversion rate equal to the stated price of $1.00 divided by the prior day’s closing price of the Company’s common stock as quoted on the OTC Link, LLC operated by OTC Markets Group, Inc.

 

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of April 30, 2018, are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, we believe the persons and entities included in the below table have sole voting and investing power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable, and their address is c/o the Company at 11700 W Charleston Blvd #73, Las Vegas, NV 89135.

 

 
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Security Ownership of Certain Beneficial Owners & Management

 

Title of Class

 

Name and Address of Beneficial Owner

 

Amount and nature of beneficial ownership

 

 

Percent of Class

 

Common Stock

 

Brandon Romanek

 

 

105,316,322

 

 

 

84.9 %

Series A Preferred Stock

 

Brandon Romanek

 

 

2,000,000

 

 

 

100 %

Series B Preferred Stock

 

Carlos Escamilla & Daniel Jones

 

 

165,000

 

 

 

100 %

___________ 

 

Item 5. Directors and Executive Officers.

 

The names, ages, positions, periods served of the Company’s present directors are set forth in the following table:

 

Name

 

Age

 

Positions

 

Period of Service Began

Brandon Romanek

 

44

 

CEO, President, CFO, Secretary, Director (1)

 

January 12, 2017

 

______ 

(1) All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified.

 

There are no agreements with respect to electing directors. The Board of Directors appoints officers annually and each executive officer serves at the discretion of the Board of Directors. The Company does not have any standing committees at this time, and due to its small size does not believe that committees are necessary at this time. As of the date of this Registration Statement, the Company’s Board fulfills the duties of an audit committee. None of the directors held any directorships during the past five years in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such act, or of any company registered as an investment company under the Investment Company Act of 1940.

 

Director and Officer Biographical Information

 

Brandon Romanek

 

Brandon’s background in brokerage firms, hedge funds, institutions, money management, and trading prepared him for the task of building THC Therapeutics. Beginning in 1999, Brandon traded with Wedbush, Merrill Lynch other brokerage firms using portfolio margin. Brandon has traded on many platforms including Real Tick, Sterling, LightSpeed, and Firetip. From 2002-2006, Brandon traded CFD’s with the CMC Markets in Toronto. From 2008, Brandon was a commodities trader in the precious metals markets. He was a broker dealer in physical metals from 2009-2011, mostly doing business with Amark, a publicly traded metals dealer. Brandon is also founder and CEO of SBR Asset Management. Brandon became the CEO and director of the Company in January of 2017, and he has not been the director of any other public company during the past five years. We believe that Brandon’s financial markets background makes him a valuable member of our Board of Directors.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

(1) had a petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

 
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(2) has been convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) has been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

(ii) Engaging in any type of business practice; or

 

(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

 

(4) has been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (3)(i) above, or to be associated with persons engaged in any such activity;

 

(5) has been found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

 

(6) has been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

(7) has been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

(i) Any Federal or State securities or commodities law or regulation; or

 

(ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

(8) has been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

 
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Item 6. Executive Compensation.

 

Summary Compensation Table

 

The following table sets forth, for the fiscal years ended July 31, 2017 and July 31, 2016, certain information regarding the compensation earned by the Company’s named executive officers.

 

Summary Compensation Table

 

Name and Principal Position

 

Fiscal Year

Ended

July 31,

 

Salary($)

 

 

Total ($)

 

Brandon Romanek, CEO/CFO (1)

 

2017

 

$ -

 

 

$ -

 

 

 

2016

 

 

-

 

 

 

-

 

Jamie Mann, CEO/CFO (2)

 

2017

 

$ 17,712

 

 

$ 17,712

 

 

 

2016

 

 

67,925

 

 

 

67,925

 

___________  

(1) Mr. Romanek was appointed as CEO of the Company on January 12, 2017.
(2) Mr. Mann was the former CEO and CFO of the Company until January 12, 2017, when he resigned and Mr. Romanek was appointed as the sole officer and director of the Company.

 

Director Compensation

 

Directors do not receive compensation for serving as a Director of the Company.

 

Employment Agreements

 

Except for the following agreements, the Company does not have any written agreements with any of its executive officers.

 

On November 1, 2017, we entered into an employment agreement with Brandon Romanek, our Chief Executive Officer. In accordance with this agreement, Mr. Romanek provided services to the Company in exchange for $78,000 per year plus vacation and bonuses as approved annually by the board of directors and reimbursable expenses incurred. During the nine months ending April 30, 2018, the Company accrued $41,137 related to this agreement. As of April 30, 2018, Mr. Romanek allowed the Company to defer all compensation related to his employment totaling $41,137.

 

Stock Option Plan and other Employee Benefits Plans

 

The Company does not maintain a Stock Option Plan or other Employee Benefit Plans.

 

Overview of Compensation Program

 

We currently do not maintain a Compensation Committee of the Board of Directors. Until a formal committee is established, our entire Board of Directors has responsibility for establishing, implementing and continually monitoring adherence with the Company’s compensation philosophy. The Board of Directors ensures that the total compensation paid to the executives is fair, reasonable, and competitive.

 

Compensation Philosophy and Objectives

 

The Board of Directors believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company and that aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. As a result of the size of the Company, the Board evaluates both performance and compensation on an informal basis. Upon hiring additional executives, the Board intends to establish a Compensation Committee to evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative.

 

 
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Role of Executive Officers In Compensation Decisions

 

The Board of Directors makes all compensation decisions for, and approves recommendations regarding equity awards to, the executive officers and directors of the Company.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence.

 

Transactions with Related Persons

 

Advances from related parties for the years ending July 31, 2017 and 2016  

 

Our Chief Executive Officer and a shareholder, a relative of our Chief Executive Officer, have agreed to advance funds to the Company from time to time to support the ongoing operations of the Company. The advances are due within ten (10) days of demand and bear interest at 5% annually.

 

Advances from related parties consist of the following as of July 31, 2017:

 

 

 

Year ending July 31, 2017

 

 

Principal as of

 

 

Accrued interest balance

As of

 

 

 

Funds advanced

 

 

Funds repaid

 

 

July 31, 2017

 

 

July 31, 2017

 

B. Romanek, President and CEO

 

$ 121,200

 

 

$ 49,938

 

 

$ 71,262

 

 

$ 1,040

 

Shareholder Relative of our President and CEO

 

 

6,025

 

 

 

-

 

 

 

6,025

 

 

 

79

 

TOTAL

 

$ 127,225

 

 

$ 49,938

 

 

$ 77,287

 

 

$ 1,120

 

 

The former sole officer and director of the Company advanced the Company $6,888 and $11,144 during the years ending July 31, 2017 and 2016, respectively.

 

On January 4, 2017, the former sole officer and director forgave all advances in relation to his acquisition of the assets under the Kouei International license agreement and related business.

 

Advances from related parties for the nine months ending April 30, 2018

 

Our Chief Executive Officer and a shareholder, a relative of our Chief Executive Officer, have agreed to advance funds to the Company from time to time to support the ongoing operations of the Company. The advances are due within ten (10) days of demand and bear interest at 5% annually.

 

Advances from related parties consist of the following as of April 30, 2018:

 

 

 

Principal as of

 

 

Nine months ending April 30, 2018

 

 

Principal as of

 

 

Accrued interest balance

 

 

 

July 31,

2017

 

 

Funds

advanced

 

 

Funds

repaid

 

 

April 30,

2018

 

 

As of April 30, 2018

 

B. Romanek, President and CEO

 

$ 71,262

 

 

$ 105,256

 

 

$ 62,916

 

 

$ 113,602

 

 

$ 4,342

 

Shareholder Relative of our President and CEO

 

$ 6,025

 

 

 

37,088

 

 

 

9,924

 

 

 

33,189

 

 

 

524

 

TOTAL

 

$ 77,287

 

 

$ 142,344

 

 

$ 72,840

 

 

$ 146,791

 

 

$ 4,866

 

 

 
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Asset purchase agreement with related parties

 

On January 20, 2017, the Company entered into an asset purchase agreement with its current officer and director, Brandon Romanek, under which it acquired certain patent and trademark applications and other intellectual property in exchange for 100,000,000 shares of common stock and 2,000,000 shares of Series A Preferred Stock.

 

Due to the common control nature of the transaction the Company recorded the assets at their historical carrying amounts in accordance with ASC 805-50-30. The shares issued as consideration were fair valued at $20,100,000, as a result the difference between the value of the proceeds transferred and the carrying amounts of the net assets received was recognized in additional paid-in capital.

 

The purchase price was allocated as follows:

 

Amount

 

Patents and patents pending

 

$ 13,717

 

Trademarks

 

 

1,000

 

Website and domain names

 

 

15,098

 

dHydronator® Prototype

 

 

27,100

 

Total historical costs of assets acquired

 

$ 56,915

 

 

Stock issuances to related parties

 

Issuances of Common and Preferred Stock for the year ended July 31, 2016

 

On July 20, 2016, the Company issued 3,200,569 shares of common stock of the Company to a former officer of the Company in exchange for $225,000 of accrued consulting fees due to our sole officer and director. The shares were fair valued at $384,067, and a loss on settlement of debt of $162,269 was recorded as a result of the transaction.

 

Issuances of Common and Preferred Stock for the year ended July 31, 2017

 

On January 23, 2017, the Company issued 100,000,000 shares of common stock and 2,000,000 shares of Series A Preferred Stock to our current officer and director, Brandon Romanek, as consideration under an asset purchase agreement with him. (See Note 12 for additional details.)

 

Promoters and Certain Control Persons

 

None.

 

List of Parents

 

None.

 

Director Independence

 

The Company has one independent director. All current directors are shareholders of the Company.

 

Item 8. 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.

 

 
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Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Market Information

 

The Common Stock of the Company is currently trading on the OTC Link, LLC quotation board operated by OTC Markets Group, Inc., under the symbol “MBLC.” The following information reflects the high and low bid prices of the Company’s common stock on the OTC Link found on OTCMarkets.com.

 

Quarterly period

 

High

 

 

Low

 

Fiscal year ended July 31, 2016:

 

 

 

 

 

 

First Quarter

 

$ 0.21

 

 

$ 0.056

 

Second Quarter

 

$ 0.14

 

 

$ 0.056

 

Third Quarter

 

$ 1.33

 

 

$ 0.0336

 

Fourth Quarter

 

$ 2.77

 

 

$ 0.07

 

 

 

 

 

 

 

 

 

 

Fiscal year ended July 31, 2017:

 

 

 

 

 

 

 

 

First Quarter

 

$ 0.0885

 

 

$ 0.02

 

Second Quarter

 

$ 0.3161

 

 

$ 0.0201

 

Third Quarter

 

$

0.1.30

 

 

$ 0.112

 

Fourth Quarter

 

$ 0.5746

 

 

$ 0.3002

 

 

Fiscal year ended July 31, 2018:

 

 

 

 

 

 

First Quarter

 

$ 0.4149

 

 

$ 0.2151

 

Second Quarter

 

$ 1.94

 

 

$ 0.1965

 

Third Quarter

 

$ 0.9875

 

 

$ 0.301

 

 

Holders

 

As of April 30, 2018, there were 123,985,891 shares of common stock outstanding, which were held by approximately nine shareholders of record. In addition, there were 2,000,000 shares of our Series A Preferred Stock outstanding, which shares were held by one shareholder of record, and there were 165,000 shares of our Series B Preferred Stock outstanding, which shares were held by two shareholders of record.

 

Dividends

 

We have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The Company does not currently maintain any Equity Compensation Plans.

 

Item 10. Recent Sales of Unregistered Securities.

 

On July 20, 2016, the Company issued 3,200,569 shares of common stock of the Company to a former officer of the Company in exchange for $225,000 of accrued consulting fees due to that former officer.

 

On January 13, 2017, we entered into a convertible promissory note with a note holder who assumed two outstanding notes totaling $112,400. Interest under the convertible promissory note is 5% per annum, and the principal and all accrued but unpaid interest is due on January 13, 2018. The note is convertible at any time following the issuance date at noteholder’s option into shares of our common stock at a fixed conversion price of $0.001. On February 6, 2017, the holder of the note converted $10,000 of the principal of the note into 10,000,000 common shares of the Company at a conversion price of $0.001. On April 28, 2017, the note holder forgave the remaining balance principal of $102,400 and accrued interest of 1,507.

 

 
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On January 23, 2017, the Company issued 100,000,000 shares of common stock and 2,000,000 shares of Series A Preferred Stock to our officer and director, Brandon Romanek, as consideration under an asset purchase agreement with him.

 

On May 9, 2017, the Company entered into a convertible promissory note pursuant to which we borrowed $92,500 from a third-party lender. The note carries an original issue discount of 7.5% ($7,500). Interest under the convertible promissory note is 6% per annum, and the principal and all accrued but unpaid interest is due on May 9, 2018. The note is convertible at any date after the issuance date at noteholder’s option into shares of our common stock at a variable conversion price of 65% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion.

 

Also on May 9, 2017, the Company issued stock warrants to purchase 100,000 shares of its common stock to a third-party lender as part of a financing agreement. The warrants have a strike price of $0.75. The stock warrants were exercisable six-months from grant and have a life of 3 years.

 

On May 12, 2017, the Company issued 120,000 shares of Series A Preferred Stock as consideration to the seller under an asset purchase agreement.

 

On June 6, 2017, the Company issued 45,000 shares of Series A Preferred Stock as consideration to a lender to settle a lien on assets acquired under the May 12, 2017, asset purchase agreement.

 

On June 12, 2017, the Company issued 200,000 shares of common stock to a consultant for services to be rendered between June 15, 2017 and September 15, 2017.

 

On June 26, 2017, the Company issued 88,000 shares of common stock to a consultant for services to be rendered between July 1, 2017, and June 30, 2018.

 

On August 10, 2017, the Company issued 5,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $1,740 at the date of grant.

 

On August 28, 2017, the Company issued 2,500 shares of common stock to a consultant for services rendered. The shares were fair valued at $973 at the date of grant.

 

On October 13, 2017, the Company issued stock warrants to purchase 30,000 shares of its common stock to a third-party lender as part of a financing agreement. The warrants have a strike price of $2.00. The stock warrants were exercisable immediately upon grant and have a life of 3 years.

 

On February 15, 2018, the Company agreed to issue 150,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $102,000 ($0.68 per share) and deemed fully earned at the date of grant.

 

On March 5, 2018, the Company received $25,000 from an investor pursuant to a private placement agreement with the investor to purchase 62,500 shares of the Company’s common stock and 62,500 warrants to purchase shares of the Company’s common stock at $2.00 per share for a period of three years. If the Company’s common stock has closed for 20 consecutive trading days above $3.00 per share, the investor must exercise the warrant within 30 days.

 

On March 31, 2018, the Company entered into two agreements with BurstIQ Analytics Corporation, a Colorado corporation (“BurstIQ”), a Simple Agreement for Future Tokens (the “SAFT”) and Simple Agreement for Future Equity (the “SAFE”). Pursuant to the SAFT and the SAFE, the Company purchased (i) the right to a number of BIQ tokens equal to $2,500,000 divided by a 35% discount to the maximum price per token sold by BurstIQ to the public during a network launch, and (ii) the right to a number shares of BurstIQ’s preferred stock sold in a subsequent equity financing equal to $2,500,000 divided by a deemed $6.50 price per share, in consideration of the issuance of an aggregate of 5,000,000 shares of the Company’s common stock to BurstIQ.

 

 
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On March 31, 2018, the Company and a lender agreed to settle a $30,000 promissory note and associated accrued interest of $3,473. The Company agreed to issue 95,000 shares of the Company’s common stock and warrants to purchase 195,000 shares of the Company’s common stock at $2.00 for a three-year term. In return for the consideration, the Lender agreed to release the Company from all amounts owed.

 

On April 6, 2018, the Company received $40,000 from an investor pursuant to a private placement agreement with the investor to purchase 100,000 shares of the Company’s common stock and 250,000 warrants to purchase shares of the Company’s common stock at $2.00 per share for a period of five years.

 

The issuance described above for conversion of debt on February 6, 2017, was made in reliance on the exemptions from registration provided by Sections 3(a)(9) and 4(a)(1) of the Securities Act, as the common stock was issued in exchange for debt securities of the Company held by the shareholder for the requisite holding period, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, there was no general solicitation, and the transactions did not involve a public offering. The other securities identified in this section were issued or will be issued with restrictive legends (stating that the shares have not been registered and cannot be transferred unless registered under the Securities Act of 1933 or unless an exemption from registration is available) pursuant to exemptions from registration requirements relying on Section 4(a)(2) of the Securities Act of 1933 and/or upon Rule 506(b) of Regulation D of the Securities Act of 1933 as there was no general solicitation, and the transactions did not involve a public offering.

 

Item 11. Description of Registrant’s Securities to be Registered.

 

We are registering on this Registration Statement only our common stock, the terms of which are described below. However, because our preferred stock will remain outstanding following the effectiveness of this Registration Statement, we also describe below the terms of our preferred stock to the extent such terms qualify the rights of our common stock.

 

As of April 30, 2018, the Company had authorized 500,000,000 shares of common stock and 10,000,000 shares of preferred stock, with 3,000,000 shares of preferred stock designated as Series A Preferred Stock, and 165,000 shares of preferred stock designated as Series B Preferred Stock.

 

Common Stock

 

Subject to the voting rights of the Company’s preferred stock, at any meeting of the shareholders, every shareholder of common stock is entitled to vote and may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting.

 

Each shareholder shall have one vote for every share of stock entitled to vote, which is registered in his name on the record date for the meeting, except as otherwise required by law or the Articles of Incorporation.

 

All elections of directors shall be determined by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. Except as otherwise required by law or the Articles of Incorporation, all matters other than the election of directors shall be determined by the affirmative vote of the holders of a majority of the shares entitled to vote on that matter and represented in person or by proxy at a meeting of shareholders at which a quorum is present.

 

The Company’s Articles of Incorporation do not provide for cumulative voting or preemptive rights.

 

Preferred Stock

 

Holders of the Series A Preferred Stock are entitled at their option to convert their preferred shares into common stock at a conversion rate of one hundred (100) shares of common stock for every one (1) share of Series A Preferred Stock. The holders are further entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. The holders are entitled to equal rights with our common stockholders as it relates to liquidation preference.

 

 
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Holders of Series B Preferred Stock are entitled to a liquidation preference on the stated value of $1.00 per share. The shares carry a mandatory conversion provision, with all shares of Series B Preferred Stock convertible by the Company one year from issuance, at a variable conversion rate equal to the stated price of $1.00 divided by the prior day’s closing price as quoted on OTC Markets. Holders of Series B Preferred Stock are not entitled to any voting or dividend rights.

 

Convertible Instruments

 

The following is a description of the material terms of our convertible instruments which remain outstanding as of April 30, 2018):

 

On May 9, 2017, the Company entered into a convertible promissory note pursuant to which we borrowed $92,500 from a third-party lender. The note carries an original issue discount of 7.5% ($7,500). Interest under the convertible promissory note is 6% per annum, and the principal and all accrued but unpaid interest is due on May 9, 2018. The note is convertible at any date after the issuance date at noteholder’s option into shares of our common stock at a variable conversion price of 65% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion.

 

Warrants

 

On May 9, 2017, the Company issued to the convertible note lender described in the preceding paragraph, warrants to purchase 100,000 shares of the Company’s common stock. The warrants have a strike price of $0.75. The stock warrants were exercisable six-months from grant and have a life of 3 years.

 

On October 13, 2017, the Company issued warrants to purchase 30,000 shares of Company’s common stock to a third-party lender. The warrants have a strike price of $2.00. The warrants were exercisable immediately upon grant and have a life of 3 years.

 

On March 5, 2018, the Company issued to an investor warrants to purchase 62,500 shares the Company’s common stock at $2.00 per share for a period of three years. If the Company’s common stock has closed for 20 consecutive trading days above $3.00 per share, the investor must exercise the warrant within 30 days.

 

On March 31, 2018, the Company agreed to issue to a lender warrants to purchase 195,000 shares of the Company’s common stock at $2.00 for a three-year term.

 

On April 6, 2018, the Company issued to an investor warrants to purchase 250,000 shares of the Company’s common stock at $2.00 per share for a period of five years.

 

Item 12. Indemnification of Directors and Officers.

 

Our Articles of Incorporation and bylaws both provide for the indemnification of our officers and directors to the fullest extent permitted by the Nevada Revised Statutes. These provisions state that certain persons (hereinafter called “lndemnitees”) may be indemnified by a Nevada corporation pursuant to the provisions of applicable law, namely, any person (or the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Company will indemnify the Indemnitees in each and every situation where the Company is obligated to make such indemnification pursuant to the aforesaid statutory provisions. The Company will also indemnify the Indemnitees in each and every situation where, under the aforesaid statutory provisions, the Company is not obligated, but is nevertheless permitted or empowered, to make such indemnification. Before making such indemnification with respect to any situation covered under the foregoing sentence, the Company will make a determination as to whether each Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that such Indemnitee’s conduct was unlawful. No such indemnification shall be made (where not required by statute) unless it is determined that such Indemnitee acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that such Indemnitee’s conduct was unlawful.

 

 
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Item 13. Financial Statements and Supplementary Data.

 

The information required by this item may be found beginning on page F-1 of this Registration Statement and are incorporated herein by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

We have had no disagreements with our independent auditors on accounting or financial disclosures.

 

Item 15. Financial Statements and Exhibits.

 

(a) Financial Statements

 

Financial Statements:

 

For the Years Ended July 31, 2017 and 2016

 

Report of Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets as of July 31, 2017 and 2016

 

Consolidated Statements of Operations for the years ended July 31, 2017 and 2016

 

Consolidated Statements of Changes in Stockholders’ Deficit for the years ended July 31, 2017 and 2016

 

Consolidated Statement of Cash Flows for the years ended July 31, 2017 and 2016

 

Notes to Consolidated Financial Statements

 

For the Three and Nine Months Ended April 30, 2018 (Unaudited)

 

Consolidated Balance Sheets as of April 30, 2018 and July 31, 2017

 

Consolidated Statements of Operations for the three and nine months ended April 30, 2018 and 2017

 

Consolidated Statement of Cash Flows for the nine months ended April 30, 2018 and 2017

 

Notes to Consolidated Financial Statements

 

(b) Exhibits.

 

See the Exhibit Index attached hereto which is incorporated by reference.

 

 
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THC THERAPEUTICS, INC

 

(formerly MILLENNIUM BLOCKCHAIN, INC.)

 

NOTES TO THE FINANCIAL STATEMENTS

 

JULY 31, 2017

 

 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Millennium Blockchain, Inc.

 

We have audited the accompanying balance sheets of Millennium Blockchain, Inc. as of July 31, 2017 and July 31, 2016 and the related statements of operations, stockholders' (deficit), and cash flows for each of the years in the two-year period ended July 31, 2017 and July 31, 2016. Millennium Blockchain, Inc.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Millennium Blockchain, Inc. as of July 31, 2017 and July 31, 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended July 31, 2017 and July 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no revenues, has negative working capital at July 31, 2017 and July 31, 2016, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ AMC Auditimg

 

AMC Auditing

Las Vegas, Nevada

February 28, 2018

 

 
F-2
 
Table of Contents

 

THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED BALANCE SHEETS

(AUDITED)

 

ASSETS

 

July 31,

2017

 

 

July 31,

2016

 

Current assets

 

 

 

 

 

 

Cash

 

$ 187

 

 

$ 245

 

Prepaid

 

 

78,765

 

 

 

-

 

Total current assets

 

 

78,952

 

 

 

245

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,208

 

 

 

-

 

Fixed Assets

 

 

78,874

 

 

 

-

 

Intangible Assets

 

 

32,612

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

193,646

 

 

 

245

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 82,140

 

 

$ 128,255

 

Accrued liabilities due to related parties

 

 

1,120

 

 

 

20,841

 

Advances from related parties

 

 

77,287

 

 

 

11,482

 

Notes payable

 

 

60,000

 

 

 

50,000

 

Convertible Notes payable, net

 

 

22,739

 

 

 

99,998

 

Derivative liability

 

 

146,229

 

 

 

67,376

 

Total current liabilities

 

 

389,515

 

 

 

377,952

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

389,515

 

 

 

377,952

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Common stock; $0.001 par value; 500,000,000 shares authorized;

 

 

 

 

 

 

 

 

118,778,391 and 8,490,391 shares issued and outstanding

 

 

 

 

 

 

 

 

as of July 31, 2017 and July 31, 2016, respectively

 

 

118,778

 

 

 

8,490

 

Preferred stock; $0.001 par value; 10,000,000 shares authorized;

 

 

 

 

 

 

 

 

2,165,000 and 0 series A and B shares issued and outstanding as of

 

 

 

 

 

 

 

 

July 31, 2017 and July 31, 2016, respectively

 

 

 

 

 

 

 

 

Preferred A stock; $0.001 par value; 3,000,000 shares authorized;

 

 

 

 

 

 

 

 

2,000,000 and 0 shares issued and outstanding as of

 

 

 

 

 

 

 

 

July 31, 2017 and July 31, 2016, respectively

 

 

2,000

 

 

 

-

 

Preferred B stock; $0.001 par value; 165,000 shares authorized;

 

 

 

 

 

 

 

 

165,000 and 0 shares issued and outstanding as of

 

 

 

 

 

 

 

 

July 31, 2017 and July 31, 2016, respectively

 

 

165

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

2,937,860

 

 

 

2,482,767

 

Accumulated deficit

 

 

(3,254,672 )

 

 

(2,868,964 )

Total stockholders' deficit

 

 

(195,869 )

 

 

(377,707 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$ 193,646

 

 

$ 245

 

 

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

 

 
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THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED STATEMENT OF OPERATIONS

(AUDITED)

 

 

 

For the Years Ended

 

 

 

July 31,

2017

 

 

July 31,

2016

 

 

 

 

 

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Professional fees

 

 

90,168

 

 

 

20,526

 

Compensation

 

 

5,490

 

 

 

-

 

Consulting fees

 

 

39,173

 

 

 

67,925

 

General and administrative expenses

 

 

78,283

 

 

 

15,082

 

Depreciation and amortization

 

 

10,491

 

 

 

-

 

Total operating expenses

 

 

223,605

 

 

 

103,533

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(223,605 )

 

 

(103,533 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Gain/(loss) on change in derivative liability

 

 

(81,145 )

 

 

2,454

 

Gain/(loss) on settlement of debts

 

 

202,621

 

 

 

(162,235 )

Impairment expense

 

 

(197,761 )

 

 

-

 

Interest Expense

 

 

(164,928 )

 

 

(31,683 )

Gain on conveyance of assets and liabilities to a related party

 

 

79,110

 

 

 

-

 

Total other income (expense)

 

 

(162,103 )

 

 

(191,464 )

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (385,708 )

 

$ (294,997 )

 

 

 

 

 

 

 

 

 

Basic income (loss) per common share

 

$ (0.01 )

 

$ (0.05 )

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

65,922,939

 

 

 

5,399,477

 

 

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

 

 
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THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

(AUDITED)

 

 

 

Preferred A Stock

 

 

Preferred B Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance, July 31, 2015

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,288,376

 

 

 

5,288

 

 

 

2,098,700

 

 

 

(2,573,967 )

 

 

(469,979 )

Shares issued to an officer in settlement of liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,200,569

 

 

 

3,200

 

 

 

384,069

 

 

 

-

 

 

 

387,269

 

Shares issued for fractional shares on reverse-split

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,446

 

 

 

2

 

 

 

(2 )

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(294,997 )

 

 

(294,997 )

Balance, July 31, 2016

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,490,391

 

 

 

8,490

 

 

 

2,482,767

 

 

 

(2,868,964 )

 

 

(377,707 )

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

62,513

 

 

 

-

 

 

 

62,513

 

Beneficial conversion feature on convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

134,557

 

 

 

-

 

 

 

134,557

 

Shares and warrants issued to acquire assets

 

 

2,000,000

 

 

 

2,000

 

 

 

120,000

 

 

 

120

 

 

 

100,000,000

 

 

 

100,000

 

 

 

87,556

 

 

 

-

 

 

 

189,676

 

Warrants issued as financing fee

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued on conversion of debts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,000,000

 

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

10,000

 

Preferred shares issued for settlement of debts

 

 

-

 

 

 

-

 

 

 

45,000

 

 

 

45

 

 

 

-

 

 

 

-

 

 

 

44,955

 

 

 

-

 

 

 

45,000

 

Imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

658

 

 

 

-

 

 

 

658

 

Shares issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

288,000

 

 

 

288

 

 

 

124,854

 

 

 

-

 

 

 

125,142

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(385,708 )

 

 

(385,708 )

Balance, July 31, 2017

 

 

2,000,000

 

 

 

2,000

 

 

 

165,000

 

 

 

165

 

 

 

118,778,391

 

 

 

118,778

 

 

 

2,937,860

 

 

 

(3,254,672 )

 

 

(195,869 )

 

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

 

 
F-5
 
Table of Contents

 

THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED STATEMENT OF CASHFLOWS

(AUDITED)

 

 

 

For the Years Ended

 

 

 

July 31,

2017

 

 

July 31,

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$ (385,708 )

 

$ (294,997 )

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Gain on conveyance of assets and liabilities to a related party

 

 

(79,110 )

 

 

-

 

Loss on impairment of assets

 

 

197,761

 

 

 

-

 

Loss on change in derivative liabilities

 

 

81,145

 

 

 

(2,488 )

Impairment expense

 

 

658

 

 

 

 

 

Loss on acquisition of assets from a related party

 

 

-

 

 

 

-

 

Amortization of debt discount

 

 

155,820

 

 

 

19,221

 

Stock based compensation

 

 

46,377

 

 

 

-

 

Depreciation and amortization

 

 

10,491

 

 

 

-

 

Loss (gain) on settlement of debts

 

 

(197,761 )

 

 

162,269

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in deposits

 

 

(3,208 )

 

 

-

 

Increase (decrease) in accounts payable

 

 

3,032

 

 

 

30,704

 

Increase (decrease) in accounts payable related party

 

 

18,832

 

 

 

67,924

 

Net cash from operating activities

 

 

(151,671 )

 

 

(17,367 )

 

 

 

 

 

 

 

 

 

Cash Flows from investing

 

 

 

 

 

 

 

 

Purchase of intangible assets

 

 

(5,062 )

 

 

-

 

Purchase of fixed assets

 

 

(20,000 )

 

 

-

 

Net cash used in investing activities

 

 

(25,062 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from related party debts

 

 

134,113

 

 

 

11,144

 

Payments on related party debts

 

 

(49,938 )

 

 

-

 

Proceeds from convertible debts

 

 

92,500

 

 

 

-

 

Net cash from financing activities

 

 

176,675

 

 

 

11,144

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in Cash

 

 

(58 )

 

 

(6,223 )

 

 

 

 

 

 

 

 

 

Beginning cash balance

 

 

245

 

 

 

6,468

 

 

 

 

 

 

 

 

 

 

Ending cash balance

 

$ 187

 

 

$ 245

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for tax

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-Cash investing and financing transactions

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

$ 134,557

 

 

$ -

 

Shares issued to settle debt

 

$ 10,000

 

 

$ 387,269

 

 

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

 

 
F-6
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

1. DESCRIPTION OF BUSINESS AND HISTORY

 

Description of business – THC Theraputics, Inc., (referred to as the “Company”) is focused developing their patent-pending product, the dHydronator®, a sanitizing herb dryer. The main function of the dHydronator is to greatly accelerate the drying time of a herb while sanitizing it.  The dHydronator can be used to dry a variety of herbs, and it has been specifically tested for use with cannabis, and it will reduce the drying time for cannabis from 10-14 days to less than 14 hours.

 

The Company is also focusing some of its operations on participation in testing facilities and developing personal wellness centers, as well as investigating other potentially disruptive technologies including blockchain technologies and crypto-assets focused on financial markets, healthcare, crypto-mining and high-technology.

 

History – The Company was incorporated in the State of Nevada on May 1, 2007, as Fairytale Ventures, Inc., and later changed its name to Aviation Surveillance Systems, Inc. and Harmonic Energy, Inc. On January 23, 2017, the Company changed its name to THC Therapeutics, Inc.

 

On May 30, 2017, the Company formed Genesis Float Spa LLC, a wholly-owned subsidiary, to market its float spa assets purchased for wellness centers. The Company’s health spa plans are part of the Company’s strategic focus on revenue generation and creating shareholder value.

 

On January 17, 2018, the Company changed its name to Millennium Blockchain, Inc.

 

On September 28, 2018, the Company changed its name back to THC Therapeutics, Inc.

 

THC Therapeutics, Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”

 

2. BASIS OF PRESENTATION AND GOING CONCERN

 

Basis of Presentation – The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the period presented have been reflected herein.

 

Going Concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $3,254,672 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

3. SUMMARY OF SIGNIFICANT POLICIES

 

This summary of significant accounting policies of THC Therapeutics, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements.

 

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 
F-7
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

Cash and Cash Equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There are $187 and $245 in cash and cash equivalents as of July 31, 2017, and July 31, 2016, respectively.

 

Concentration Risk – At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of July 31, 2017, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

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

 

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

 

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

 

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

 

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

 

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

 

Revenue Recognition :

 

Product Sales – Revenues from the sale of products are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered.

 

Costs of Revenue – Costs of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue.

 

Goodwill and Intangible Assets – The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “ Intangibles – Goodwill and Other. ” According to this statement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

 

Long-Lived Assets – In accordance with the Financial Accounting Standards Board (“FASB”) Accounts Standard Codification (ASC) ASC 360-10, “Property, Plant and Equipment,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

 

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.

 

 
F-8
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

Stock-Based Compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “ Compensation-Stock Compensation ”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

 

Stock based compensation expense recognized under ASC 718-10 for the years ended July 31, 2017 and 2016, totaled $46,377 and $0, respectively.

 

Earnings (Loss) Per Share – The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “ Earnings Per Share .” Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.

 

Advertising Costs – The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expenses of $13,726 and $0 as of July 31, 2017 and July 31, 2016, respectively.

 

Recently Issued Accounting Pronouncements – The Company has evaluated the all recent accounting pronouncements through ASU 2018-01, and believes that none of them will have a material effect on the Company’s financial position, results of operations or cash flows.

 

4. FIXED ASSETS

 

Fixed assets consist of the following as of July 31, 2017, and July 31, 2016:

 

 

 

July 31,

2017

 

 

July 31,

2016

 

dHydronator prototype

 

 

27,100

 

 

 

 

Float Spa and associated equipment

 

$ 60,000

 

 

$ -

 

Less: accumulated depreciation

 

 

(8,226 )

 

 

-

 

Fixed assets, net

 

$ 78,874

 

 

$ -

 

 

Depreciation expense for the years ended July 31, 2017, and July 31, 2016, was $8,226 and $0, respectively.

 

5. INTANGIBLE ASSETS

 

Intangible assets consist of the following as of July 31, 2017, and July 31, 2016:

 

 

 

July 31,

2017

 

 

July 31,

2016

 

Patents and patents pending

 

 

18,505

 

 

 

 

Trademarks

 

 

1,275

 

 

 

 

Website and domain names

 

 

15,098

 

 

 

 

Less: accumulated depreciation

 

 

(2,265 )

 

 

-

 

Intangible assets, net

 

$ 32,612

 

 

$ -

 

 

Amortization expense for the years ended July 31, 2017, and July 31, 2016, was $2,265 and $0, respectively.

 

7. ADVANCES FROM RELATED PARTIES

 

Our Chief Executive Officer and a shareholder, a relative of our Chief Executive Officer, have agreed to advance funds to the Company from time to time to support the ongoing operations of the Company. The advances are due within ten (10) days of demand and bear interest at 5% annually.

 

Advances from related parties consist of the following as of July 31, 2017:

 

 

 

Year ending July 31,

2017

 

 

Principal as of

 

 

Accrued interest balance As of

 

 

 

Funds

advanced

 

 

Funds

repaid

 

 

July 31,

2017

 

 

July 31,

2017

 

B. Romanek, President and CEO

 

$ 121,200

 

 

$ 49,938

 

 

$ 71,262

 

 

$ 1,040

 

Shareholder Relative of our President and CEO

 

 

6,025

 

 

 

-

 

 

 

6,025

 

 

 

79

 

TOTAL

 

$ 127,225

 

 

$ 49,938

 

 

$ 77,287

 

 

$ 1,120

 

 

 
F-9
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

The former sole officer and director of the Company advanced the Company $6,888 and $11,144 during the years ending July 31, 2017 and 2016, respectively.

 

On January 4, 2017, the former sole officer and director forgave all advances in relation to his acquisition of the assets under the Kouei International license agreement and related business. (See Note 4 for additional details.)

 

8. NOTES PAYABLE

 

Notes Payable at consists of the following:

 

July 31,

 

 

July 31,

 

 

 

2017

 

 

2016

 

On January 9, 2013, the Company signed an unsecured promissory note for $50,000. The loan was originally due on January 9, 2014, and carried an interest at 8%. On January 9, 2014, the promissory note was acquired by a non-related lender, and the maturity date was extended to January 9, 2015. All other loan terms remained the same.

 

On January 13, 2017, the note was purchased by an investor in exchange for a convertible promissory note, and the original lender released all future claims related to the debt.

 

$ -

 

 

$ 50,000

 

On May 12, 2017, the Company issued a $60,000 promissory note; the note carries no interest rate and is payable in monthly installments of $5,000. As of July 31, 2017, no principal installments had been paid.

 

 

60,000

 

 

 

-

 

Total

 

 

60,000

 

 

 

50,000

 

 

9. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:

 

July 31,

 

 

July 31,

 

 

 

2017

 

 

2016

 

On May 22, 2013, we entered into a convertible promissory note pursuant to which we borrowed $62,440. Interest under the convertible promissory note is 7% per annum, and the principal and all accrued but unpaid interest is due on May 22, 2014. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 90% of the market price of our common stock at the date of notice of conversion. The Company recorded a debt discount in the amount of $50,041 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $50,041 and an initial loss of $0 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $0 and $0 during the years ended July 31, 2017 and 2016, respectively.

 

On January 13, 2017, the note was purchased by an investor and the original lender released all future claims related to the convertible debts.

 

$ -

 

 

$ 62,440

 

Unamortized debt discount

 

 

-

 

 

 

-

 

Total, net of unamortized discount

 

 

-

 

 

 

62,440

 

 

 
F-10
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

On June 26, 2014, we entered into a convertible promissory note pursuant to which we borrowed $35,000. Interest under the convertible promissory note is 7% per annum, and the principal and all accrued but unpaid interest is due on June 26, 2017. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 90% of the market price of our common stock at the date of notice of conversion. The Company recorded a debt discount in the amount of $35,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $36,464 and an initial loss of $1,454 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $11,699 and $9,461 during the years ended July 31, 2017 and 2016, respectively.

 

On December 16, 2016, the lender released all claims related to the convertible debts.

 

 

-

 

 

 

35,000

 

Unamortized debt discount

 

 

-

 

 

 

(9,461 )

Total, net of unamortized discount

 

 

-

 

 

 

1,111,110

 

 

 

 

 

 

 

 

 

 

On July 31, 2014, we entered into a convertible promissory note pursuant to which we borrowed $10,000. Interest under the convertible promissory note is 7% per annum, and the principal and all accrued but unpaid interest is due on July 31, 2017. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 90% of the market price of our common stock at the date of notice of conversion. The Company recorded a debt discount in the amount of $10,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $10,804 and an initial loss of $804 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $3,342 and $3,333 during the years ended July 31, 2017 and 2016, respectively.

 

On December 16, 2016, the lender released all claims related to the convertible debts.

 

 

-

 

 

 

10,000

 

Unamortized debt discount

 

 

-

 

 

 

(3,333 )

Total, net of unamortized discount

 

 

-

 

 

 

6,667

 

 

 

 

 

 

 

 

 

 

On February 2, 2015, we entered into a convertible promissory note pursuant to which we borrowed $2,500. Interest under the convertible promissory note is 7% per annum, and the principal and all accrued but unpaid interest is due on May 2, 2018. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 90% of the market price of our common stock at the date of notice of conversion. The Company recorded a debt discount in the amount of $2,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $2,714 and an initial loss of $214 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $836 and $1,258 during the years ended July 31, 2017 and 2016, respectively.

 

On December 16, 2016, the lender released all claims related to the convertible debts.

 

 

-

 

 

 

2,500

 

Unamortized debt discount

 

 

-

 

 

 

(1,258 )

Total, net of unamortized discount

 

 

-

 

 

 

1,242

 

 
 
F-11
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

On May 7, 2015, we entered into a convertible promissory note pursuant to which we borrowed $10,000. Interest under the convertible promissory note is 7% per annum, and the principal and all accrued but unpaid interest is due on May 7, 2018. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 90% of the market price of our common stock at the date of notice of conversion. The Company recorded a debt discount in the amount of $10,000 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $10,880 and an initial loss of $880 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $3,342 and $5,890 during the years ended July 31, 2017 and 2016, respectively.

 

On December 16, 2016, the lender released all claims related to the convertible debts.

 

 

-

 

 

 

10,000

 

Unamortized debt discount

 

 

-

 

 

 

(5,890 )

Total, net of unamortized discount

 

 

-

 

 

 

4,110

 

 

 

 

 

 

 

 

 

 

On January 13, 2017, we entered into a convertible promissory note with a note holder who assumed two outstanding notes totaling $112,400. Interest under the convertible promissory note is 5% per annum, and the principal and all accrued but unpaid interest is due on January 13, 2018. The note is convertible at any time following the issuance date at the noteholder’s option into shares of our common stock at a fixed conversion price of $0.001. The Company has determined the value associated with the beneficial conversion feature in connection with the notes and interest to be $112,400.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $112,400 and $0 during the years ended July 31, 2017 and 2016, respectively.

 

On February 6, 2017, the holder of the note converted $10,000 of the principal of the note into 10,000,000 common shares of the Company at a conversion price of $.001.

 

On April 28, 2017, the note holder forgave the remaining balance principal of $102,400 and accrued interest of 1,507. A gain on settlement of debt of $103,947 was recorded on the settlement of the note payable.

 

 

-

 

 

 

-

 

Unamortized debt discount

 

 

-

 

 

 

-

 

Total, net of unamortized discount

 

 

-

 

 

 

-

 

 

 
F-12
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

On May 9, 2017, we entered into a convertible promissory note pursuant to which we borrowed $92,500. The note carries an original issue discount of 7.5% ($7,500). Interest under the convertible promissory note is 6% per annum, and the principal and all accrued but unpaid interest is due on May 9, 2018. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 65% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion. The Company recorded a debt discount in the amount of $92,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $150,122 and an initial loss of $89,739 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $21,034 and $0 during the years ended July 31, 2017 and 2016, respectively.

 

 

92,500

 

 

 

-

 

Original issue discount

 

 

7,500

 

 

 

-

 

Unamortized debt discount

 

 

(77,261 )

 

 

 

 

Total, net of unamortized discount

 

 

22,739

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total

 

$ 22,739

 

 

 

99,998

 

 

Derivative liability

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

The following table presents a summary of the Company’s derivative liabilities associated with its convertible notes as of July 31, 2017, and July 31, 2016:

 

 

 

Amount

 

Balance July 31, 2015

 

$ 69,864

 

Debt discount originated from derivative liabilities

 

 

-

 

Initial loss recorded

 

 

-

 

Adjustment to derivative liability due to debt conversion

 

 

-

 

Change in fair market value of derivative liabilities

 

 

(2,488 )

Balance July 31, 2016

 

$ 67,376

 

Debt discount originated from derivative liabilities

 

 

50,383

 

Initial loss recorded

 

 

89,739

 

Adjustment to derivative liability due to debt settlement

 

 

(62,513 )

Change in fair market value of derivative liabilities

 

 

1,244

 

Balance July 31, 2017

 

$ 146,229

 

 

The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note and at July 31, 2017:

 

Fair value assumptions – derivative notes:

 

July 31,

2017

 

Risk free interest rate

 

0.11-1.23

%

Expected term (years)

 

0.01-3

 

Expected volatility

 

210-378

%

Expected dividends

 

 

0 %

 

 
F-13
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

10. STOCK WARRANTS

 

The following is a summary of warrant activity during years ended July 31, 2017 and 2016:

 

 

 

Number of

Shares

 

 

Weighted Average Exercise

Price

 

Balance, July 31, 2015

 

 

47,619

 

 

$ 0.05

 

 

 

 

 

 

 

 

 

 

Warrants granted and assumed

 

 

-

 

 

 

-

 

Warrants expired

 

 

47,619

 

 

$ 0.05

 

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2016

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Warrants granted and assumed

 

 

125,000

 

 

$ 1.00

 

Warrants expired

 

 

-

 

 

 

-

 

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2017

 

 

125,000

 

 

$ 1.00

 

 

None of the warrants outstanding as of July 31, 2017 were exercisable.

 

On May 9, 2017, the Company issued stock warrants to purchase 100,000 shares of its common stock to a lender as part of a financing agreement with Bellridge Capital. The warrants have a strike price of $0.75. The stock warrants were exercisable six-months from grant and have a life of 3 years.

 

On May 12, 2017, the Company issued stock warrants to purchase 25,000 shares of its common stock as part of an asset purchase agreement. The warrants have a strike price of $2.00. The stock warrants were exercisable six-months from grant and have a life of 3 years. The stock warrants were valued at $12,761 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.51; exercise price: $2.00; term: 3 years; risk-free interest rate: 1.49%; volatility: 434%.

 

11. SHAREHOLDERS’ DEFICIT

 

Overview

 

The Company’s authorized capital stock consists of 500,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock.

 

As of July 31, 2017, and July 31, 2016, the Company had 118,778,391 and 8,490,391 shares of common stock issued and outstanding, respectively.

 

As of July 31, 2017, and July 31, 2016, the Company had 2,000,000 and 0 shares of Series A Preferred Stock issued and outstanding, respectively.

 

As of July 31, 2017, and July 31, 2016, the Company had 165,000 and 0 shares of Series B Preferred Stock issued and outstanding, respectively.

 

On June 10, 2016, the Company effected a 14:1 reverse stock split. All share and per share data in the accompanying financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.

 

On January 23, 2017, the Company increased its number of authorized shares of common stock from 100,000,000 to 500,000,000, and authorized 10,000,000 shares of preferred stock, with the Company’s board of directors having authority to designate the rights and preferences of each series of preferred stock.

 

 
F-14
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

Description of Common Stock

 

Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our capital stock representing fifty percent (50%) of the votes associated with our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as a liquidation, merger or an amendment to our articles of incorporation.

 

Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefor.

 

Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders.

 

In the event of any merger or consolidation of our company with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

Description of Preferred Stock

 

Our board of directors is authorized to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock, including, but not limited to, the following:

 

·

the rate of dividend, the time of payment of dividends, whether dividends are cumulative, and the date from which any dividends accrue;

 

·

whether shares may be redeemed, and, if so, the redemption price and the terms and conditions of redemption;

 

·

the amount payable upon shares in the event of voluntary or involuntary liquidation;

 

·

sinking fund or other provisions, if any, for the redemption or purchase of shares;

 

·

the terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion;

 

·

voting powers, if any, provided that if any of the preferred stock or series thereof have voting rights, such preferred stock or series shall vote only on a share for share basis with the common stock on any matter, including, but not limited to, the election of directors, for which such preferred stock or series has such rights; and,

 

·

subject to the foregoing, such other terms, qualifications, privileges, limitations, options, restrictions, and special or relative rights and preferences, if any, of shares or such series as the board of directors may, at the time so acting, lawfully fix and determine under the laws of the State of Nevada.

 

Series A Preferred Stock

 

On January 24, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series A Preferred Stock,” consisting of three million (3,000,000) shares, par value $0.001.

 

Under the Certificate of Designation, holders of the Series A Preferred Stock are entitled at their option to convert their preferred shares into common stock at a conversion rate of one hundred (100) shares of common stock for every one (1) share of Series A Preferred Stock. The holders are further entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. The holders are entitled to equal rights with our common stockholders as it relates to liquidation preference.

 

 
F-15
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

Series B Preferred Stock

 

On May 12, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series B Preferred Stock,” consisting of up to one hundred twenty thousand (120,000) shares, par value $0.001.

 

On June 5, 2017, the Company amended the designation to increase the number of shares of Series B Preferred Stock to one hundred sixty-five thousand (165,000) shares, par value $0.001.

 

Under the Certificate of Designation, as amended, holders of Series B Preferred Stock are entitled to a liquidation preference on the stated value of $1.00 per share. The shares carry a mandatory conversion provision, and all shares of Series B Preferred Stock will be redeemed by the Company one year from issuance, at a variable conversion rate equal to the stated price of $1.00 divided by the prior day’s closing price as quoted on OTC Markets. Holders of Series B Preferred Stock are not entitled to any voting or dividend rights.

 

Issuances of Common and Preferred Stock for the year ended July 31, 2016

 

On July 20, 2016, the Company issued 3,200,569 shares of common stock of the Company to a former officer of the Company in exchange for $225,000 of accrued consulting fees due to our sole officer and director. The shares were fair valued at $384,067, and a loss on settlement of debt of $162,269 was recorded as a result of the transaction.

 

Issuances of Common and Preferred Stock for the year ended July 31, 2017

 

On January 23, 2017, the Company issued 100,000,000 shares of common stock and 2,000,000 shares of Series A Preferred Stock to our current officer and director, Brandon Romanek, as consideration under an asset purchase agreement with him. (See Note 12 for additional details.)

 

On February 6, 2017, the Company issued 10,000,000 shares of common stock in settlement of $10,000 of debt. (See Note 9 for additional details.)

 

On May 12, 2017, the Company issued 120,000 shares of Series B Preferred Stock as consideration under the asset purchase agreement described in Note 13. (See Note 13 for additional details.)

 

On June 6, 2017, the Company issued 45,000 shares of Series B Preferred Stock as consideration under the asset purchase agreement described in Note 13. (See Note 13 for additional details.)

 

On June 26, 2017, the Company issued 88,000 shares of common stock to a consultant for services to be rendered between July 1, 2017, and June 30, 2018. The shares were fair valued at $38,782 at the date of grant. $3,196 was reported as stock compensation, and $35,586 was capitalized as prepaid expense as of July 31, 2017.

 

On June 12, 2017, the Company issued 200,000 shares of common stock to a consultant for services to be rendered between June 15, 2017 and September 15, 2017. The shares were fair valued at $86,360 at the date of grant. $43,181 was reported as stock compensation, and $43,179 was capitalized as prepaid expense as of July 31, 2017.

 

12. ASSET PURCHASE AGREEMENT

 

On January 20, 2017, the Company entered into an asset purchase agreement with its current officer and director, Brandon Romanek, under which it acquired certain patent and trademark applications and other intellectual property in exchange for 100,000,000 shares of common stock and 2,000,000 shares of Series A Preferred Stock.

 

Due to the common control nature of the transaction the Company recorded the assets at their historical carrying amounts in accordance with ASC 805-50-30. The shares issued as consideration were fair valued at $20,100,000, as a result the difference between the value of the proceeds transferred and the carrying amounts of the net assets received was recognized in additional paid-in capital.

 

The purchase price was allocated as follows:

 

Amount

 

Patents and patents pending

 

$ 13,717

 

Trademarks

 

 

1,000

 

Website and domain names

 

 

15,098

 

dHydronator Prototype

 

 

27,100

 

Total historical costs of assets acquired

 

$ 56,915

 

 

 
F-16
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(AUDITED)

 

13. ASSET PURCHASE AGREEMENT - HEALTH SPA

 

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 the associated equipment, subject to an existing lien, along with a client list, in exchange for an initial payment of $20,000 cash, 120,000 shares of Series B Preferred Stock valued at $120,000, a $60,000 promissory note and warrants to purchase 25,000 shares of common stock. The Company also agreed to settled a lien on certain assets acquired through the issuance of 45,000 shares of Series B Preferred Stock.

 

The warrants have a strike price of $2.00. The stock warrants were exercisable six-months from grant and have a life of 3 years. The stock warrants were valued at $12,761 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.51; exercise price: $2.00; term: 3 years; risk-free interest rate: 1.49%; volatility: 434%.

 

The total consideration for the transaction carried a fair value of $257,761, and the fair value of the assets was deemed by the Company to be $60,000. An initial impairment loss of $197,761 was reported as a result of the transaction.

 

The purchase price was allocated as follows:

 

Amount

 

Float Spa units and related equipment

 

$ 60,000

 

Client lists

 

 

-

 

Balance July 31, 2017

 

$ 60,000

 

 

14. COMMITMENTS AND CONTINGENCIES

 

The Company does not own any real property. It does own personal property, and it leases office space on a month-to-month basis. There is no obligation for this arrangement to continue.

 

15. SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to July 31, 2017 to the date these financial statements were available to be issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described below.

 

On August 10, 2017, the Company issued 5,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $1,740 at the date of grant.

 

On August 28, 2017, the Company issued 2,500 shares of common stock to a consultant for services rendered. The shares were fair valued at $778 at the date of grant.

 

On October 13, 2017, we entered into a promissory note pursuant to which we borrowed $30,000. Interest under the convertible promissory note is 25% per annum, and the principal and all accrued but unpaid interest is due in four equal quarterly payments of $9,375.

 

On October 13, 2017, the Company issued stock warrants to purchase 30,000 shares of its common stock to a lender as part of a financing agreement. The warrants have a strike price of $2.00. The stock warrants were exercisable immediately upon grant and have a life of 3 years. The stock warrants were valued at $8,497 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.34; exercise price: $2.00; term: 3 years; risk-free interest rate: 1.64%; volatility: 434%.

 

Effective November 20, 2017, the Company entered into a Joint Venture Agreement with ADVFN plc of the United Kingdom (“ADVFN”) to create a joint venture entity, MJAC InvestorsHub International Conferences Limited, to be owned 50/50 by the Company and ADVFN. A copy of the agreement can be viewed on the Company’s website at http://thctherapeutics.com/wp-content/uploads/2017/03/MJAC%20JV%20agreement%2020-11-17%20opt2.pdf.

 

 
F-17
 
Table of Contents

 

THC THERAPEUTICS, INC

 

(formerly MILLENNIUM BLOCKCHAIN, INC.)

 

NOTES TO THE FINANCIAL STATEMENTS

 

(UNAUDITED)

 

April 30, 2018

 

 
F-18
 
Table of Contents

 

THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

April 30,

2018

 

 

July 31,

2017

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 2,237

 

 

$ 187

 

Prepaid

 

 

10,212

 

 

 

78,765

 

Total current assets

 

 

12,449

 

 

 

78,952

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

-

 

 

 

3,208

 

Fixed Assets

 

 

63,629

 

 

 

78,874

 

Intangible Assets

 

 

29,377

 

 

 

32,612

 

Rights to Burst IQ Coins

 

 

1,564,000

 

 

 

-

 

Investment in Burst IQ

 

 

1,564,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

3,233,455

 

 

 

193,646

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 103,345

 

 

$ 82,140

 

Accrued liabilities due to related parties

 

 

46,004

 

 

 

1,120

 

Advances from related parties

 

 

146,791

 

 

 

77,287

 

Notes payable

 

 

48,200

 

 

 

60,000

 

Convertible Notes payable, net

 

 

97,534

 

 

 

22,739

 

Derivative liability

 

 

106,955

 

 

 

146,229

 

Total current liabilities

 

 

548,829

 

 

 

389,515

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

548,829

 

 

 

389,515

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Common stock; $0.001 par value; 500,000,000 shares authorized;

 

 

 

 

 

 

 

 

123,985,891 and 118,778,391 shares issued and outstanding

 

 

 

 

 

 

 

 

as of April 30, 2018 and July 31, 2017, respectively

 

 

123,986

 

 

 

118,778

 

Preferred stock; $0.001 par value; 10,000,000 shares authorized;

 

 

 

 

 

 

 

 

2,165,000 and 2,165,000 series A and B shares issued and outstanding as of

 

 

 

 

 

 

 

 

April 30, 2018 and July 31, 2017, respectively

 

 

 

 

 

 

 

 

Preferred A stock; $0.001 par value; 3,000,000 shares authorized;

 

 

 

 

 

 

 

 

2,000,000 and 2,000,000 shares issued and outstanding as of

 

 

 

 

 

 

 

 

April 30, 2018 and July 31, 2017, respectively

 

 

2,000

 

 

 

2,000

 

Preferred B stock; $0.001 par value; 165,000 shares authorized;

 

 

 

 

 

 

 

 

165,000 and 165,000 shares issued and outstanding as of

 

 

 

 

 

 

 

 

April 30, 2018 and July 31, 2017, respectively

 

 

165

 

 

 

165

 

Stock payable

 

 

172,695

 

 

 

-

 

Additional paid-in capital

 

 

6,294,351

 

 

 

2,937,860

 

Accumulated deficit

 

 

(3,908,571 )

 

 

(3,254,672 )

Total stockholders' deficit

 

 

2,684,626

 

 

 

(195,869 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$ 3,233,455

 

 

$ 193,646

 

 

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

 

 
F-19
 
Table of Contents

 

THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

April 30,

2018

 

 

April 30,

2017

 

 

April 30,

2018

 

 

April 30,

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

 

23,192

 

 

 

17,115

 

 

 

46,336

 

 

 

24,126

 

Compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consulting fees

 

 

135,486

 

 

 

4,100

 

 

 

257,641

 

 

 

22,162

 

Payroll expense

 

 

20,569

 

 

 

-

 

 

 

41,137

 

 

 

-

 

General and administrative expenses

 

 

41,142

 

 

 

22,680

 

 

 

108,191

 

 

 

32,594

 

Depreciation and amortization

 

 

6,213

 

 

 

3,169

 

 

 

19,012

 

 

 

4,424

 

Total operating expenses

 

 

226,602

 

 

 

47,064

 

 

 

472,317

 

 

 

83,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(226,602 )

 

 

(47,064 )

 

 

(472,317 )

 

 

(83,306 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(loss) on change in derivative liability

 

 

11,273

 

 

 

(162 )

 

 

39,274

 

 

 

4,701

 

Gain/(loss) on settlement of debts

 

 

-

 

 

 

122,839

 

 

 

(132,234 )

 

 

202,621

 

Gain on conveyance of liabilities to a related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

79,110

 

Interest Expense

 

 

(28,729 )

 

 

(108,115 )

 

 

(88,622 )

 

 

(139,047 )

Total other income (expense)

 

 

(17,456 )

 

 

14,562

 

 

 

(181,582 )

 

 

147,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (244,058 )

 

$ (32,502 )

 

$ (653,899 )

 

$ 64,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per common share

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.01 )

 

$ 0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

120,637,576

 

 

 

117,816,224

 

 

 

119,389,144

 

 

 

48,160,721

 

 

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

 

 
F-20
 
Table of Contents

 

THC THERAPEUTICS INC.

(formerly MILLENNIUM BLOCKCHAIN, INC.)

CONSOLIDATED STATEMENT OF CASHFLOWS

(UNAUDITED)

 

 

 

For the Nine Months Ended

 

 

 

April 30,

2018

 

 

April 30,

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$ (653,899 )

 

$ 64,079

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Loss on change in derivative liabilities

 

 

(39,274 )

 

 

(4,701 )

Amortization of original issue discount

 

 

5,610

 

 

 

-

 

Amortization of debt discount

 

 

69,185

 

 

 

132,221

 

Settlement of related party debts

 

 

-

 

 

 

(79,110 )

Settlement of debts

 

 

-

 

 

 

(202,621 )

Stock based compensation

 

 

242,119

 

 

 

-

 

Depreciation and amortization

 

 

19,012

 

 

 

4,424

 

Inputed interest

 

 

2,121

 

 

 

-

 

Loss (gain) on settlement of debts

 

 

132,234

 

 

 

-

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in deposits

 

 

3,208

 

 

 

-

 

(Increase) decrease in prepaids

 

 

-

 

 

 

-

 

Increase (decrease) in accounts payable

 

 

24,678

 

 

 

(23,516 )

Increase (decrease) in accounts payable related party

 

 

44,884

 

 

 

-

 

Net cash from operating activities

 

 

(150,122 )

 

 

(109,224 )

 

 

 

 

 

 

 

 

 

Cash Flows from investing

 

 

 

 

 

 

 

 

Purchase of intangible assets

 

 

(532 )

 

 

-

 

Net cash used in investing activities

 

 

(532 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from sale of common stock and warrants

 

 

65,000

 

 

 

-

 

Proceeds from related party debts

 

 

142,344

 

 

 

75,371

 

Payments on related party debts

 

 

(72,840 )

 

 

(28,785 )

Proceeds from loans

 

 

30,000

 

 

 

-

 

Payments on loans

 

 

(11,800 )

 

 

(50,000 )

Proceeds from convertible debts

 

 

-

 

 

 

112,400

 

Net cash from financing activities

 

 

152,704

 

 

 

108,986

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in Cash

 

 

2,050

 

 

 

(238 )

 

 

 

 

 

 

 

 

 

Beginning cash balance

 

 

187

 

 

 

245

 

 

 

 

 

 

 

 

 

 

Ending cash balance

 

$ 2,237

 

 

$ 7

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for tax

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-Cash investing and financing transactions

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

$ -

 

 

$ -

 

Shares issued to settle debt

 

$ -

 

 

$ -

 

 

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

 

 
F-21
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

1. DESCRIPTION OF BUSINESS AND HISTORY

 

Description of business – THC Theraputics, Inc., (referred to as the “Company”) is focused developing their patent-pending product, the dHydronator®, a sanitizing herb dryer. The main function of the dHydronator is to greatly accelerate the drying time of a herb while sanitizing it.  The dHydronator can be used to dry a variety of herbs, and it has been specifically tested for use with cannabis, and it will reduce the drying time for cannabis from 10-14 days to less than 14 hours.

 

The Company is also focusing some of its operations on participation in testing facilities and developing personal wellness centers, as well as investigating other potentially disruptive technologies including blockchain technologies and crypto-assets focused on financial markets, healthcare, crypto-mining and high-technology.

 

History – The Company was incorporated in the State of Nevada on May 1, 2007, as Fairytale Ventures, Inc., and later changed its name to Aviation Surveillance Systems, Inc. and Harmonic Energy, Inc. On January 23, 2017, the Company changed its name to THC Therapeutics, Inc.

 

On May 30, 2017, the Company formed Genesis Float Spa LLC, a wholly-owned subsidiary, to market its float spa assets purchased for wellness centers. The Company’s health spa plans are part of the Company’s strategic focus on revenue generation and creating shareholder value.

 

On January 17, 2018, the Company changed its name to Millennium Blockchain Inc.

 

On September 28, 2018, the Company changed its name back to THC Therapeutics, Inc.

 

THC Therapeutics, Inc., together with its subsidiaries, shall herein be collectively referred to as the “Company.”

 

2. BASIS OF PRESENTATION AND GOING CONCERN

 

Basis of Presentation – The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Audited Financial Statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent Annual Audited Financial Statements have been omitted.

 

Going Concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $3,908,571 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

3. SUMMARY OF SIGNIFICANT POLICIES

 

This summary of significant accounting policies of THC Therapeutics, Inc. is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.

 

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

 

Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

 
F-22
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Cash and Cash Equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There are $2,237 and $187 in cash and cash equivalents as of April 30, 2018, and July 31, 2017, respectively.

 

Concentration Risk – At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of April 30, 2018, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

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

 

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

 

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

 

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

 

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

 

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

 

Revenue Recognition :

 

Product Sales – Revenues from the sale of products are recognized when title to the products are transferred to the customer and only when no further contingencies or material performance obligations are warranted, and thereby have earned the right to receive reasonably assured payments for products sold and delivered.

 

Costs of Revenue – Costs of revenue includes raw materials, component parts, and shipping supplies. Shipping and handling costs is not a significant portion of the cost of revenue.

 

Goodwill and Intangible Assets – The Company follows Financial Accounting Standard Board’s (FASB) Codification Topic 350-10 (“ASC 350-10”), “ Intangibles – Goodwill and Other. ” According to this statement, goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather an annual assessment of impairment by applying a fair-value based test. Fair value for goodwill is based on discounted cash flows, market multiples and/or appraised values as appropriate. Under ASC 350-10, the carrying value of assets are calculated at the lowest level for which there are identifiable cash flows.

 

Long-Lived Assets – In accordance with the Financial Accounting Standards Board (“FASB”) Accounts Standard Codification (ASC) ASC 360-10, “Property, Plant and Equipment,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

 

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.

 

 
F-23
 
Table of Contents

  

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock-Based Compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “ Compensation-Stock Compensation ”, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.

 

Stock based compensation expense recognized under ASC 718-10 for the nine months ended April 30, 2018 and 2017, totaled $242,119 and $0, respectively.

 

Earnings (Loss) Per Share – The Company reports earnings (loss) per share in accordance with FASB Codification Topic ASC 260-10 “ Earnings Per Share .” Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed exercise of options and warrants to purchase common shares (common stock equivalents) would have an anti-dilutive effect.

 

Advertising Costs – The Company’s policy regarding advertising is to expense advertising when incurred. The Company incurred advertising expenses of $24,274 and $10,066 during the nine months ended of April 30, 2018 and 2017, respectively.

 

Recently Issued Accounting Pronouncements – The Company has evaluated the all recent accounting pronouncements through ASU 2018-08 and believes that none of them will have a material effect on the Company’s financial position, results of operations or cash flows.

 

4. FIXED ASSETS

 

Fixed assets consist of the following as of April 30, 2018, and July 31, 2017:

 

 

 

April 30,

2018

 

 

July 31,

2017

 

dHydronator prototype

 

$ 27,100

 

 

$ 27,100

 

Float Spa and associated equipment

 

 

60,000

 

 

 

60,000

 

Office furniture and equipment

 

 

532

 

 

 

-

 

Less: accumulated depreciation

 

 

(24,003 )

 

 

(8,226 )

Fixed assets, net

 

$ 63,629

 

 

$ 78,874

 

 

Depreciation expense for the nine months ended April 30, 2018 and 2017, was $15,777 and $3,332, respectively.

 

5. INTANGIBLE ASSETS

 

Intangible assets consist of the following as of April 30, 2018, and July 31, 2017:

 

 

 

April 30,

2018

 

 

July 31,

2017

 

Patents and patents pending

 

$ 18,505

 

 

$ 18,505

 

Trademarks

 

 

1,275

 

 

 

1,275

 

Website and domain names

 

 

15,098

 

 

 

15,098

 

Less: accumulated depreciation

 

 

(5,500 )

 

 

(2,265 )

Intangible assets, net

 

$ 29,377

 

 

$ 32,612

 

 

Amortization expense for the nine months ended April 30, 2018, and 2017, was $3,235 and $1,092, respectively.

 

6. RIGHTS TO BURST IQ COINS

 

On March 31, 2018, the Company entered into a Simple Agreement for Future Tokens (the “SAFT”) with BurstIQ Analytics Corporation, a Colorado corporation (“BurstIQ”). Pursuant to the SAFT, the Company purchased the right to a number of BIQ tokens equal to $2,500,000 divided by a 35% discount to the maximum price per token sold by BurstIQ to the public during a network launch, in consideration of the issuance of 2,500,000 shares of the Company’s common stock to BurstIQ at a deemed value of $2,500,000.

 

In accordance with ASC 820, the company valued its investment in rights to Burst IQ coins based upon the unadjusted quoted prices of its common stock issued as consideration on the execution date of the agreement and determined the value to be $0.6256 per share or $1,564,000. The investment will be carried on the books at cost basis, until the coins are issued. It is anticipated that when the coins are issued that there will be an active market for the coins. If the market exists as anticipated, the Company intends to strategically sell the coins at opportune times that will create value for its shareholders.

 

 
F-24
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

7. RIGHTS TO BURST IQ EQUITY

 

On March 31, 2018, the Company entered into a Simple Agreement for Future Equity (the “SAFE”). Pursuant to the SAFE, the Company purchased the right to a number shares of Burst IQ’s preferred stock sold in a subsequent equity financing equal to $2,500,000 divided by a deemed $6.50 price per share, in consideration of the issuance of 2,500,000 shares of the Company’s common stock to BurstIQ.

 

In accordance with ASC 820, the company valued its investment in rights to Burst IQ preferred stock based upon the unadjusted quoted prices of its common stock issued as consideration on the execution date of the agreement and determined the value to be $0.6256 per share or $1,564,000. When the equity in Burst IQ is issued the Company plans to hold the equity as a long-term investment. The Company will conduct an impairment analysis on assets on an annual basis or at any time there is evidence that the value has been impaired more than temporarily.

 

8. ADVANCES FROM RELATED PARTIES

 

Our Chief Executive Officer and a shareholder, a relative of our Chief Executive Officer, have agreed to advance funds to the Company from time to time to support the ongoing operations of the Company. The advances are due within ten (10) days of demand and bear interest at 5% annually.

 

Advances from related parties consist of the following as of April 30, 2018:

 

 

 

Principal as of

 

 

Nine months ending

April 30, 2018

 

 

Principal as of

 

 

Accrued interest balance As of

 

 

 

July 31,

2017

 

 

Funds

advanced

 

 

Funds

repaid

 

 

April 30,

2018

 

 

April 30,

2018

 

B. Romanek, President and CEO

 

$ 71,262

 

 

$ 105,256

 

 

$ 62,916

 

 

$ 113,602

 

 

$ 4,342

 

Shareholder Relative of our President and CEO

 

$ 6,025

 

 

 

37,088

 

 

 

9,924

 

 

 

33,189

 

 

 

524

 

TOTAL

 

$ 77,287

 

 

$ 142,344

 

 

$ 72,840

 

 

$ 146,791

 

 

$ 4,866

 

 

9. RELATED PARTY TRANSACTIONS

 

On November 1, 2017, we entered into an employment agreement with Brandon Romanek Huber, our Chief Executive Officer. In accordance with this agreement, Mr. Romanek provided services to the Company in exchange for $78,000 per year plus vacation and bonuses as approved annually by the board of directors and reimbursable expenses incurred. During the nine months ending April 30, 2018, the Company accrued $41,137 related to this agreement. As of April 30, 2018, Mr. Romanek allowed the Company to defer all compensation related to his employment totaling $41,137.

 

10. NOTES PAYABLE

 

Notes Payable at consists of the following:

 

April 30,

 

 

July 31,

 

 

 

2018

 

 

2017

 

On May 12, 2017, the Company issued a $60,000 promissory note; the note carries no interest rate and is payable in monthly installments of $5,000. As of April 30, 2018, $11,800 in principal payments had been paid. The Company imputed interest at a rate of 5%, during the nine months ending April 30, 2018 the Company recorded imputed interest of $2,121.

 

 

48,200

 

 

 

60,000

 

 

 

 

 

 

 

 

 

 

Total

 

 

48,200

 

 

 

60,000

 

 

On October 13, 2017, we entered into a promissory note pursuant to which we borrowed $30,000. Interest under the promissory note was 25% per annum, the principal and all accrued interest was due in four equal quarterly payments of $9,375. On March 31, 2018, the Company entered into an agreement to settle all outstanding principal and interest due under the promissory note totaling $33,473. Under the terms of the agreement the Company issued 95,000 shares and 195,000 3-year, warrants with a strike price of $2.00 and received an unconditional release of all liability under the promissory note. The shares and warrants were fair valued at $165,707 on the date of issuance and a loss on settlement of debt of $132,234 was recoded as a result of the settlement agreement.

 

 
F-25
 
Table of Contents

 

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

11. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:

 

April 30,

 

 

July 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

On May 9, 2017, we entered into a convertible promissory note pursuant to which we borrowed $92,500. The note carries an original issue discount of 7.5% ($7,500). Interest under the convertible promissory note is 6% per annum, and the principal and all accrued but unpaid interest is due on May 9, 2018. The note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 65% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion. The Company recorded a debt discount in the amount of $92,500 in connection with the initial valuation of the derivative liability of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. Further, the Company recognized a derivative liability of $170,560 and an initial loss of $78,060 based on the Black-Scholes pricing model.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $73,151 and $0 during the nine months ended April 30, 2018 and 2017, respectively.

 

 

92,500

 

 

 

92,500

 

Original issue discount

 

 

7,500

 

 

 

7,500

 

Unamortized debt discount

 

 

(2,466 )

 

 

(77,261 )

Total, net of unamortized discount

 

 

97,534

 

 

 

22,739

 

 

 

 

 

 

 

 

 

 

Total

 

$ 97,534

 

 

$ 22,739

 

 

Derivative liability

 

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

The following table presents a summary of the Company’s derivative liabilities associated with its convertible notes as of July 31, 2017, and April 30, 2018:

 

 

 

Amount

 

Balance July 31, 2016

 

$ 67,376

 

Debt discount originated from derivative liabilities

 

 

50,383

 

Initial loss recorded

 

 

89,739

 

Adjustment to derivative liability due to debt settlement

 

 

(62,513 )

Change in fair market value of derivative liabilities

 

 

1,244

 

Balance July 31, 2017

 

$ 146,229

 

Debt discount originated from derivative liabilities

 

 

-

 

Initial loss recorded

 

 

-

 

Adjustment to derivative liability due to debt settlement

 

 

-

 

Change in fair market value of derivative liabilities

 

 

(39,274 )

Balance April 30, 2018

 

$ 106,955

 

 

 
F-26
 
Table of Contents

  

THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note and at April 30, 2018:

 

Fair value assumptions – derivative notes:

 

April 30,

2018

 

Risk free interest rate

 

 

2.24 %

Expected term (years)

 

 

0.025

 

Expected volatility

 

 

214 %

Expected dividends

 

 

0 %

 

12. STOCK WARRANTS

 

The following is a summary of warrant activity during the year ended July 31, 2017, and the nine months ended April 30, 2018:

 

 

 

Number of

Shares

 

 

Weighted Average Exercise

Price

 

Balance, July 31, 2016

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Warrants granted and assumed

 

 

125,000

 

 

$ 1.00

 

Warrants expired

 

 

-

 

 

 

-

 

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2017

 

 

125,000

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Warrants granted and assumed

 

 

342,500

 

 

$ 2.00

 

Warrants expired

 

 

-

 

 

 

-

 

Warrants canceled

 

 

-

 

 

 

-

 

Warrants exercised

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Balance, April 30, 2018

 

 

467,500

 

 

$ 1.73

 

 

467,500 of the warrants outstanding as of April 30, 2018 were exercisable.

 

On May 9, 2017, the Company issued stock warrants to purchase 100,000 shares of its common stock to a lender as part of a financing agreement. The warrants have a strike price of $0.75. The stock warrants were exercisable six-months from grant and have a life of 3 years. The stock warrants were valued at $51,050 using the Black-Scholes option pricing model. The Company recorded an expense of $50,050 for the year ended July 31, 2017. The valuation was made using the following assumptions: stock price at grant: $0.51; exercise price: $0.75; term: 3 years; risk-free interest rate: 1.57%; volatility: 434%.

 

On May 12, 2017, the Company issued stock warrants to purchase 25,000 shares of its common stock as part of an asset purchase agreement. The warrants have a strike price of $2.00. The stock warrants were exercisable six-months from grant and have a life of 3 years. The stock warrants were valued at $12,761 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.51; exercise price: $2.00; term: 3 years; risk-free interest rate: 1.49%; volatility: 434%.

 

On October 13, 2017, the Company issued stock warrants to purchase 30,000 shares of its common stock to a lender in connection with a financing agreement. The warrants have a strike price of $2.00. The stock warrants were exercisable immediately upon grant and have a life of 3 years. The stock warrants were valued at $8,467 using the Black-Scholes option pricing model. The valuation was made using the following assumptions: stock price at grant: $0.34; exercise price: $2.00; term: 3 years; risk-free interest rate: 1.64%; volatility: 434%.

 

On March 5, 2018, the Company received $25,000 from an investor pursuant to a private placement agreement with the investor to purchase 62,500 shares of the Company’s common stock and 62,500 warrants to purchase shares of the Company’s common stock at $2.00 per shares for a period of three years. If the Company’s common stock has closed for 20 consecutive trading days above $3.00 per shares the investor must exercise the warrant within 30 days.

 

On March 31, 2018, the Company and a lender agreed to settle a $30,000 promissory note and associated accrued interest of $3,473. The Company agreed to issue 95,000 shares of the Company’s common stock and warrants to purchase 195,000 shares of the Company’s common stock at $2.00 for a three-year term. In return for the consideration the Lender agreed to release the Company from all amounts owed.

 

 
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THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

On April 6, 2018, the Company received $40,000 from an investor pursuant to a private placement agreement with the investor to purchase 100,000 shares of the Company’s common stock and 250,000 warrants to purchase shares of the Company’s common stock at $2.00 per shares for a period of five years.

 

13. SHAREHOLDERS’ DEFICIT

 

Overview

 

The Company’s authorized capital stock consists of 500,000,000 shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par value preferred stock.

 

As of April 30, 2018, and July 31, 2017, the Company had 123,985,891 and 118,778,391 shares of common stock issued and outstanding, respectively.

 

As of April 30, 2018, and July 31, 2017, the Company had 2,000,000 and 2,000,000 shares of Series A Preferred Stock issued and outstanding, respectively.

 

As of April 30, 2018, and July 31, 2017, the Company had 165,000 and 165,000 shares of Series B Preferred Stock issued and outstanding, respectively.

 

On January 23, 2017, the Company increased its number of authorized shares of common stock from 100,000,000 to 500,000,000, and authorized 10,000,000 shares of preferred stock, with the Company’s board of directors having authority to designate the rights and preferences of each series of preferred stock.

 

Series A Preferred Stock

 

On January 24, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series A Preferred Stock,” consisting of three million (3,000,000) shares, par value $0.001.

 

Under the Certificate of Designation, holders of the Series A Preferred Stock are entitled at their option to convert their preferred shares into common stock at a conversion rate of one hundred (100) shares of common stock for every one (1) share of Series A Preferred Stock. The holders are further entitled to vote together with the holders of the Company’s common stock on all matters submitted to shareholders at a rate of one hundred (100) votes for each share held. The holders are entitled to equal rights with our common stockholders as it relates to liquidation preference.

 

Series B Preferred Stock

 

On May 12, 2017, pursuant to Article III of our Articles of Incorporation, the Company designated a class of preferred stock, the “Series B Preferred Stock,” consisting of up to one hundred twenty thousand (120,000) shares, par value $0.001. On June 5, 2017, the Company amended the designation to increase the number of shares of Series B Preferred Stock to one hundred sixty-five thousand (165,000) shares, par value $0.001.

 

Under the Certificate of Designation, as amended, holders of Series B Preferred Stock are entitled to a liquidation preference on the stated value of $1.00 per share. The shares carry a mandatory conversion provision, and all shares of Series B Preferred Stock will be redeemed by the Company one year from issuance, at a variable conversion rate equal to the stated price of $1.00 divided by the prior day’s closing price as quoted on OTC Markets. Holders of Series B Preferred Stock are not entitled to any voting or dividend rights.

 

Issuances of Common and Preferred Stock for the nine months ended April 30, 2018

 

On August 10, 2017, the Company issued 5,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $1,740 at the date of grant.

 

On August 28, 2017, the Company issued 2,500 shares of common stock to a consultant for services rendered. The shares were fair valued at $973 at the date of grant.

 

On February 15, 2018, the Company agreed to issue 150,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $102,000 ($0.68 per share) and deemed fully earned at the date of grant.

 

On November 27, 2017, the Company agreed to issue 50,000 shares of common stock to a consultant for services rendered. The shares were fair valued at $13,000 and deemed fully earned at the date of grant.

 

 
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THC THERAPEUTICS, INC

(formerly MILLENNIUM BLOCKCHAIN, INC.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

On March 31, 2018, the Company issued of 5,000,000 shares of the Company’s common stock to BurstIQ in accordance with a SAFE and SAFT agreement. (See Note 6 and Note 7 for additional details.)

 

Common Stock Payable for the nine months ended April 30, 2018

 

On December 16, 2017, the Company agreed to issue 165,000 shares of common stock to a consultant. The shares were fair valued at $48,263 at the date of grant. The shares vest as follows: 100,000 shares vest on January 1, 2018; 25,000 shares vest upon completion of the audit of the fiscal years ending July 31, 2017 and 2016; 12,500 shares vest upon completion of the review of the Company’s financial statements for the quarter ending October 31, 2017; 12,500 shares vest upon completion of the January 31, 2018 review; and 12,500 shares vest upon filing of the Company’s April 30, 2018 review. As of April 30, 2018, the shares had not yet been issued.

 

On March 5, 2018, the Company received $25,000 from an investor pursuant to a private placement agreement with the investor to purchase 62,500 shares of the Company’s common stock and 62,500 warrants to purchase shares of the Company’s common stock at $2.00 per shares for a period of three years. If the Company’s common stock has closed for 20 consecutive trading days above $3.00 per shares the investor must exercise the warrant within 30 days. As of April 30, 2018, the shares had not yet been issued.

 

On March 31, 2018, the Company and a lender agreed to settle a $30,000 promissory note and associated accrued interest of $3,473. The Company agreed to issue 95,000 shares of the Company’s common stock and warrants to purchase 195,000 shares of the Company’s common stock at $2.00 for a three-year term. In return for the consideration the Lender agreed to release the Company from all amounts owed. As of April 30, 2018, the shares had not yet been issued.

 

On April 6, 2018, the Company received $40,000 from an investor pursuant to a private placement agreement with the investor to purchase 100,000 shares of the Company’s common stock and 250,000 warrants to purchase shares of the Company’s common stock at $2.00 per shares for a period of five years. As of April 30, 2018, the shares had not yet been issued.

 

14. COMMITMENTS AND CONTINGENCIES

 

The Company does not own any real property. It does own personal property, and it leases office space on a month-to-month basis. There is no obligation for this arrangement to continue.

 

15. SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to April 30, 2018 to the date these financial statements were available to be issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described below.

 

Impact PPA

On June 14, 2018 THC Therapeutics, Inc issued 60,000 shares of the Company's Series A Preferred Stock, with each share convertible into 100 shares of the Company's common stock, to ImpactPPA Limited, a Bahamian company (“ImpactPPA”). In exchange, the Company received the right to $4,500,000 of ImpactPPA’s MPQ tokens and the right to purchase a 3% equity stake in ImpactPPA within four months of the closing date of this transaction.

 

ImpactPPA is a blockchain platform built to disrupt renewable energy finance and accelerate global energy production. ImpactPPA’s platform and tokenized model allows communities to rapidly fund and deploy clean energy solutions by untethering traditionally expensive and inefficient structures for energy financing.

 

Consulting agreement

 

On June 30, 2018, the Company engaged a consultant for business advisory services. The Consultant was issued 2-year cashless warrants to purchase 500,000 shares of the company’s common stock for $0.01 per share.

 

Promissory note

 

On June 30, 2018, the Company entered into a promissory note with an investor pursuant to which we borrowed $28,000. Interest under the promissory note is 12% per annum, principal and accrued interest is due monthly in 24 equal payments of $1,307 beginning on November 1, 2018.

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

THC THERAPEUTICS, INC.

 

(Registrant)

 

Date: October 17, 2018

By:

/s/ Brandon Romanek

 

Brandon Romanek

 

President

 

 
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EXHIBIT INDEX

 

Exhibit

 

Description

 

3.1

 

Bylaws

 

3.2

 

Articles of Incorporation filed May 1, 2007

 

3.3

 

Articles of Amendment filed January 23, 2017

 

3.4

 

Articles of Amendment filed January 17, 2018

 

3.5

 

Certificate of Designation for Series A Preferred Stock filed January 24, 2017

 

3.6

 

Certificate of Designation for Series B Preferred Stock May 12, 2017*

 

3.7

 

Amended Certificate of Designation for Series B Preferred Stock filed June 5, 2017

 

3.8

 

Articles of Amendment filed September 28, 2018

 

 

 

10.1

 

Asset Purchase Agreement with Brandon Romanek dated January 20, 2017

 

10.2

 

Asset Purchase Agreement with Urban Oasis Float Center, LLC dated June 1, 2017

 

10.3

 

Simple Agreement for Future Equity with BurstIQ Analytics Corporation dated March 31, 2018

 

10.4

 

Simple Agreement for Future Tokens with BurstIQ Analytics Corporation dated March 31, 2018

 

10.5

 

MPQ Tokens Purchase Agreement with ImpactPPA Limited dated May 8, 2018

 

10.6

 

Employment Agreement with Brandon Romanek dated November 1, 2017

 

 

 

10.8

 

Common Stock Purchase Agreement with Robot Cache, S.L. dated July 31, 2018

 

21.

 

Subsidiaries

  

 

36

 

EXHIBIT 3.1


 
BY-LAWS
OF
FAIRYTALE VENTURES, INC.

(A NEVADA CORPORATION)


ARTICLE I
OFFICES

Section 1. Registered Office. The registered office of the corporation in the State of Nevada shall be at such place as the board shall resolve.

Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II
CORPORATE SEAL

Section 3. Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Nevada." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE III
STOCKHOLDERS' MEETINGS

Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Nevada, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof.

Section 5. Annual Meeting.

(a)   The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
 
 
 
 
 

  

(b)   At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.
 
(c)   Only persons who are confirmed in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stock¬holder's notice shall

 
2
 
 

 

set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (c) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

(d)   For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

Section 6. Special Meetings.

(a)   Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), and shall be held at such place, on such date, and at such time, as the Board of Directors shall determine.
 
(b)   If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by tele-graphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
   
 
3
 
 

 

Section 7. Notice of Meetings. Except as otherwise provided by law or the Articles of   Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Articles of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holder or holders of not less than fifty percent (50%) of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, all action taken by the holders of a majority of the votes cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Articles of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Articles of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series.
 
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
 
 
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Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Nevada law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.

Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Nevada Court of Chancery for relief as provided in the General Corporation Law of Nevada, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.

Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present.

Section 13. Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, or by the written consent of the stockholders.

Section 14. Organization.

(a)   At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
 
 
5
 
 

 

(b)   The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
 
ARTICLE IV
DIRECTORS

Section 15. Number and Qualification. The authorized number of directors of the corporation shall be not less than one (1) nor more than thirteen (13) as fixed from time to time by resolution of the Board of Directors; provided that no decrease in the number of directors shall shorten the term of any incumbent directors. Directors need not be stockholders unless so required by the Articles of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Articles of Incorporation.

Section 17. Election and Term of Office of Directors. Members of the Board of Directors shall hold office for the terms specified in the Articles of Incorporation, as it may be amended from time to time, and until their successors have been elected as provided in the Articles of Incorporation.

Section 18. Vacancies. Unless otherwise provided in the Articles of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholder vote, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
 
 
6
 
 

 

Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.

Section 20. Removal . Subject to the Articles of Incorporation, any director may be removed by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation then entitled to vote, with or without cause.

Section 21. Meetings.

(a)   Annual Meetings. The annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.

(b)   Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Articles of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the state of Nevada which has been designated by resolution of the Board of Directors or the written consent of all directors.
 
(c)   Special Meetings. Unless otherwise restricted by the Articles of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Nevada whenever called by the Chairman of the Board, the President or any two of the directors.

(d)   Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
 
 
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(e)   Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

(f)   Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 22. Quorum and Voting.

(a)   Unless the Articles of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Articles of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Articles of Incorporation provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b)   At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Articles of Incorporation or these Bylaws.

Section 23. Action Without Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
 
 
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Section 25. Committees.

(a)   Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Articles of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation.

(b)   Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws.
 
(c)   Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
 
 
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(d)   Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
 
ARTICLE V
OFFICERS

Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.

Section 28. Tenure and Duties of Officers.

(a)   General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
 
 
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(b)   Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.

(c)   Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

(d)   Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(e)   Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(f)   Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

 
 
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Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.

Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
 
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION

Section 32. Execution of Corporate Instrument. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.

Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiting the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
 
 
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All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person .or persons as the Board of Directors shall authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
 
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.

ARTICLE VII
SHARES OF STOCK

Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Articles of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
 
 
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Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

Section 36. Transfers.

(a)   Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

(b)   The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Nevada.

Section 37. Fixing Record Dates.
 
(a)   In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b)   In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is filed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
 
 
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ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
 
ARTICLE IX
DIVIDENDS

Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.

Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
 
 
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ARTICLE X
FISCAL YEAR

Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

ARTICLE XI
INDEMNIFICATION

Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.

(a)   Directors Officers. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the Nevada General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Nevada General Corporation Law or (iv) such indemnification is required to be made under subsection (d).

(b)   Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the Nevada General Corporation Law.

(c)   Expense. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said mounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
 
 
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(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standard of conduct that make it permissible under the Nevada General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed in the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Nevada General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation.

(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Nevada General Corporation Law.
 
 
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(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
(g) Insurance. To the fullest extent permitted by the Nevada General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
 
(h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
 
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law.
 
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
 
(i)   The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
 
(ii)   The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
 
(iii)   The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent or another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
 
(iv)   References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
 
 
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(v)   References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw.

ARTICLE XII
NOTICES

Section 44. Notices.