HAMMER TECHNOLOGY HOLDINGS CORP. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. Results of Operations For the Year Ended July 31, 2024 Compared to the Year Ended July 31, 2023 2024 2023 $ Change % Change Revenues $ 3,279,946 $ 3,256,611 $ 23,335 0.7% Cost of sales 2,398,667 2,426,456 (27,789 ) (1.1)% Selling, general and administrative expenses 1,541,011 1,359,339 181,672 13.4% Depreciation and amortization expense 731,581 717,860 13,721 1.9% Total operating expenses $ 4,671,259 $ 4,503,655 $ 167,604 3.7% Net revenues for the year ended July 31, 2024 and 2023 were $3,279,946 and $3,256,611 respectively, an increase of approximately $23,335 or 0.7%. The increase was primarily due to the expansion of the Company's Over-the-Top ("OTT") business segment which includes its SMS messaging and hosting business units. During the year ended July 31, 2024, the Company incurred total operating expenses of $4,671,259 compared with $4,503,655, an increase of approximately $167,604 or 3.7%, for the comparable period ended July 31, 2023. The increase in expenses is due to the expenses associated with the Company's diversification into the financial services markets and increased expenses associated with the expansion of the telecommunications business segment. The Company recorded depreciation and amortization expense of $731,581 and $717,860 during the year ended July 31, 2024 and 2023, respectively. During the year ended July 31, 2024 and 2023, interest expense was $86,043 and $20,618 respectively. 10 2024 2023 $ Change % Change Other income (expense) Other income $ 293,753 $ 262,259 $ 31,494 12.0% Interest expense (86,043 ) (20,618 ) (65,425 ) 317.3% Warrant financing expenses (164,525 ) (145,725 ) (18,800 ) 12.9% Financing expenses (36,617 ) (255,532 ) 218,915 (85.7)% Warrant adjustment to fair value 177,750 18,000 159,750 887.5% Other expenses (26,018 ) (175,559 ) 149,541 (85.2)% Total other income (expense) $ 158,300 $ (317,175 ) $ 475,475 (149.9)% During the year ended July 31, 2024, the Company incurred total other income of $158,300 primarily consisting of interest expense, warrant financing expenses, financing expense, and other expenses of $86,043, $164,525, $36,617, and $26,018, respectively. These expenses are partially offset by other income in the twelve months ended July 31, 2024 of $293,753, which represents income from previously written-down customer accounts receivable and gain in fair value of warrant liability of $177,750. During the year ended July 31, 2023 the Company incurred total other expenses of $317,175 consisting of interest expense, warrant financing expenses, financing expense, and other expenses of $20,618, $145,725, $255,532 and $175,559, respectively. These expenses are partially offset by other income of $262,259 and a gain on fair value of warrant liability of $18,000. During the twelve months ended July 31, 2024 the Company recorded a net loss from continuing operations of $1,233,013, compared to a loss of $1,564,219 in the same twelve-month period ended July 31, 2023. The decrease in loss is due to a large decrease in the Company's total other expenses and selling, general, and administrative expenses year over year. Liquidity and Capital Resources We have financed our operations since inception primarily through notes payable from related parties, which have been disclosed herein under Related Party Transactions. The Company had cash and cash equivalents of $74,133 and $66,688 as of July 31, 2024 and 2023, respectively. See the analysis below of the cash flow statement for further details pertaining to liquidity. We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors have included in their report on our audited financial statements for the fiscal years ended July 31, 2024 and 2023 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern. The Company is at risk of remaining a going concern. Its ability to remain a going concern is dependent upon whether the Company can raise debt and/or equity capital from third party sources for both working capital and business development needs until such time as the Company may be substantially sustained as a going concern through cash flow from operations. 2024 2023 $ Change Net cash used in operating activities - continuing operations $ (760,238 ) $ (866,756 ) $ 106,518 Net cash used in operating activities - discontinued operations - 230,050 (230,050 ) Net cash used in investing activities (19,719 ) (12,650 ) (7,069 ) Net cash provided by financing activities 787,402 233,134 554,268 Net increase (decrease) in cash and cash equivalents $ 7,445 $ (416,222 ) $ 423,667 Cash Flow from Operating Activities During the year ended July 31, 2024 the Company's total cash increased by $7,445, compared to a decrease in cash of $416,222 in the period ended July 31, 2023. Cash flow used in operating activities was $760,238, compared to $636,706 in the period ended July 31, 2023. The increase in cash was partially due to a decrease in net loss in the period as well as decreases in accounts payables, an increase in commitment shares issued, and decreases in deferred revenues, partially offset by a decrease in non-cash interest expense. Cash Flow from Investing Activities During the twelve months ended July 31, 2024, the Company's investing activities used $19,719, compared to $12,650 used in investing activities during the twelve months ended July 31, 2023. The increase was primarily due to an increase in the purchases of property and equipment as well as an increase in capitalized intangible assets during the period ended July 31, 2024. Cash Flow from Financing Activities During the year ended July 31, 2024, cash flow provided by financing activities was $787,402 compared with $233,134 provided during the year ended July 31, 2023. The increase is primarily attributable to greater borrowings of notes payable and convertible notes payable - related parties during the period. During the year ended July 31, 2024, the Company received approximately $492,474 more in proceeds from convertible notes payable - related parties as compared to the year ended July 31, 2023. 11 Going Concern As at July 31, 2024, substantial doubt existed as to the Company's ability to continue as a going concern as the Company has earned only minimal revenue, has no certainty of earning additional revenues in the future, has a working capital deficit and an overall accumulated deficit since inception. The Company will require additional financing to continue operations either from management, existing shareholders, or new shareholders through equity financing and/or sources of debt financing. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. The financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Future Financings We will continue to rely on equity sales of our common shares in order to continue to fund business operations. Issuances of additional shares may result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of equity securities or arrange for debt or other financing in amounts sufficient to fund our operations and other development activities. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of financial statements in accordance with GAAP requires application of management's subjective judgments, often requiring estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our actual results may differ substantially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in "Note 3 - Summary of Significant Accounting Policies," to our consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K, we believe that the following accounting policies require the application of significant judgments and estimates. Warrant Fair Value Our warrant fair value estimates are based on the Black Scholes model using quoted market prices and estimated volatility factors based on historical prices of the Company's common stock. Intangible Assets Our intangible assets, composed of intellectual property and customer contracts, were obtained through the Company's January 2022 acquisition of Telecom Financial Services, Ltd. ("TFS"). A valuation specialist was contracted to determine a purchase price allocation for the $4,230,000 paid for TFS. Ultimately, it was determined that the technology platform is valued at approximately $3,867,222 and the customer contract at approximately $367,778. These assets have useful lives of between 5 and 7 years and are amortized on a straight-line basis. Periodically, the Company assesses its intangible assets for impairment. Recently Issued Accounting Pronouncements In the period from July 2023 through July 2024, the FASB has not issued any additional accounting standards updates that have a significant impact on the Company. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 12 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.