STWC. Holdings, Inc. - Annual Report: 2017 (Form 10-K)

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K 

(Mark One)

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

For the fiscal year ended January 31, 2017

 

OR

 

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

 

Commission file number: 000-52825

 

(Exact name of registrant as specified in its charter)

Colorado	20-8980078
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or organization)
1350 Independence St., Suite 300
Lakewood, CO	80215
(Address of principal executive office)	(Zip Code)

 

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such filing).   Yes ☒   No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

 

 

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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer	☐	Smaller reporting company	☒
	(Do not check if a smaller reporting company)		Emerging growth company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):   Yes ☐   No ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant's common stock on July 31, 2016 was $1.5 million-.

As of October 1, 2018, the Registrant had 27,140,550 issued and outstanding shares of common stock.

Documents Incorporated by Reference: None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STWC Holdings, Inc.

Form 10-K

For the Year Ended January 31, 2017

TABLE OF CONTENTS

			Page
		PART I
Item 1.	Business		1
Item 1A.	Risk Factors		3
Item 1B.	Unresolved Staff Comments		3
Item 2.	Properties		3
Item 3.	Legal Proceedings		3
Item 4.	Mine Safety Disclosures		4
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		4
Item 6.	Selected Financial Data		5
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		5
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		8
Item 8.	Financial Statements and Supplementary Data		8
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		8
Item 9A.	Controls and Procedures		8
Item 9B.	Other Information		9
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance		10
Item 11.	Executive Compensation		11
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		12
Item 13.	Certain Relationships, Related Transactions and Director Independence		12
Item 14.	Principal Accountant Fees and Services		12
	PART IV
Item 15.	Exhibits, Financial Statement Schedules		27
Item 16.	Form 10-K Summary		27
	Signatures		28

 

 

 

PART I

Cautionary Statement Concerning Forward-Looking Statements

 

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as "believes", "expects", "anticipates", "intends", "plans", "estimates", "should", "likely" or similar expressions, indicates a forward-looking statement.

 

The identification in this report of factors that may affect Our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

 

 

On August 19, 2014, pursuant to an Agreement to Exchange Securities (the "Agreement"), the Company (formerly named 4^th Grade Films, Inc.) acquired approximately 90% of the outstanding common stock of Strainwise, Inc., a Colorado corporation ("Strainwise Colorado"), in exchange for 23,124,184 shares of our common stock.

●

The Company caused 1,038,000 shares of its outstanding common stock to be cancelled;

●

Shawn Phillips was appointed a director and the Chief Executive Officer of the Company;

●

Erin Phillips was appointed a director and the President, and Principal Financial and Accounting Officer of the Company;

●

David Modica was appointed a director and Manager of Quality Control of the Company;

●

Shane Thueson, Nicholl Doolin and John Winchester, resigned as officers and directors of the Company; and

●

The Company sold its motion picture film business and related assets to Shane Thueson.

On September 12, 2014 the Company acquired the remaining outstanding shares of Strainwise Colorado in exchange for the issuance of 2,517,000 shares of its common stock.  In connection with this transaction:

Unless otherwise indicated, all references to the Company include the operations of Strainwise Colorado.

On June 7, 2016, the Company changed its name to STWC Holdings, Inc. and changed its corporate domicile to Colorado.

As a result of the acquisition, between September 2014 and June 2015 the Company provided the following services to the retail marijuana outlets and marijuana cultivation facilities (the "Regulated Entities") owned by Shawn Phillips, the Company's former Chief Executive Officer.  The services were provided pursuant to a number of Master Service Agreements with the Regulated Entities. Subsequent to the end of the year these Master Service Agreements and all related leases have been terminated and are now treated as discontinued operations.

 

We are now providing sophisticated Fulfillment Services to medical and retail stores, and cultivation facilities in the regulated cannabis industry throughout the United States. Such Fulfillment Services would only be provided to stores and facilities located in geographical areas where the governing state and local ordinances allow for the unfettered provisions of such services.

 

The Fulfillment Services that we currently are able to provide are summarized, as follows:

●

Opportunity Assessment: For a standard fee, we will complete an Opportunity Assessment for a client, which would include financial modeling, completed with our proprietary assessment software.

●

Application Filing Assistance: Based upon our knowledge of the various rules and regulations of respective state and local jurisdictions, we will provide turn-key application preparation and submission services for a client, and/or provide consulting assistance to a client who is self-preparing their application.

●

Branding, Marketing and Administrative Consulting Services: Customers may contract with us to use the Strainwise® name, logo and affinity images in their retail store locations. A monthly fee will permit a branding customer to use the Strainwise® brand at a specific location. In addition, we will assist operators in marketing and managing their businesses, setting up new retail locations and general business planning and execution at an hourly rate. This includes services to establish an efficient, predictable production process, as well as, nutrient recipes for consistent and appealing marijuana strains.

●

Accounting and Financial Services: For a monthly fee, we will provide a customer with a fully implemented general ledger system, with an industry centric chart of accounts, which enables management to readily monitor and manage all facets of a marijuana medical dispensary and cultivation facility. We will provide bookkeeping, accounts payable processing, cash management, general ledger processing, financial statement preparation, state and municipal sales tax filings, and state and federal income tax compilation and filings.

●

Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and compliance may prove cumbersome. Thus, customers may contract with us to implement a compliance process, based upon the number and type of licenses and permits for their specific business. We will provide this service on both an hourly rate and stipulated monthly fee.

●

Lending: We will provide loans to individuals and businesses in the cannabis industry.

We do NOT grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature in any jurisdiction were such activity has not been legalized.

We have a fifty percent equity interest in Sentinel Strainwise, LLC, a joint venture between us and Sentinel Capital Funding. The purpose of the joint venture is to help advance responsible economic development on Native American land through cannabis related businesses. The joint venture will provide capital and cultivation design and construction services, as well as general management consulting, branding, compliance, leasing and accounting and financial services to sovereign Native American tribes throughout the United States.

 

Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use, possession, cultivation and sale remains a violation of federal law.

 

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule 1 controlled substances as "the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence." If the federal government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

As of June 28, 2018, 30 states and the District of Columbia allow their citizens to use Medical Marijuana. Additionally, Colorado, Oregon and Washington have legalized cannabis for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of such federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the federal government's enforcement of such current federal laws could cause significant financial damage to we and our shareholders. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments or the enactment of new and more restrictive laws.

Our offices are located at 1350 Independence Street, Suite 300, Lakewood, CO 80215. We lease our offices from an entity controlled by Erin Phillips, our President and a director. The lease is for 6,176 square feet of office space that originally was for January 2014 through October 2016, however, the lease was extended during November 2016 for an additional five years through October 31, 2021. The base rent provided for in the extended lease is as follows:

Time Period		Rate		Monthly Payment
November 1, 2016 – October 31, 2017		$13.25/SF FSG		$4,416.67
November 1, 2017 – October 31, 2018		$13.50/SF FSG		$4,500.00
November 1, 2018 – October 31, 2019		$13.75/SF FSG		$4,583.33
November 1, 2019 – October 31, 2020		$14.00/SF FSG		$4,666.67
November 1, 2020 – October 31, 2021		$14.25/SF FSG		$4,750.00

As of October 3, 2018, we had four full time employees.

Not applicable.

None.

See Item 1 of this report for discussion of our lease in Lakewood, which is our only property interest.

 

On June 10, 2014, the Company leased a cultivation facility containing approximately 113,000 square feet ("32nd Ave Lease") for a term of five years and nine months, commencing on July 1, 2014. In April, 2015 the Company terminated the lease due to the failure of the lessor to comply with the terms of the lease. The owner of the facility filed a claim against the Company, and, under the terms of a settlement, the Company agreed to pay the owner of the facility $100,100 in five (5) equal installments, beginning May 15, 2016. The amount of the settlement was recognized as a loss on the cancellation of the lease during the year ended January 31, 2016. We are currently named as a defendant in one civil suit filed with the District Court of the City and County of Denver, Colorado (the "Court"): This discussion of the Headgate Agreement is qualified in its entirety by the provisions of the agreement, which was attached as an Exhibit to our Current Report on Form 8-K filed with the SEC on June 19, 2018.

 

Headgate II, LLC, a Colorado limited liability company ("Headgate"), filed a summons and amended complaint with the Court, case number 2017CV031934, on May 25, 2017. In the amended complaint, Headgate accuses us of forcible entry and detainer, breach of lease, and unjust enrichment.

Not Applicable.

 

PART II

 

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

 

Prior to September 25, 2014 our common stock was quoted in the OTC Markets under the trading symbol "FHGR". On September 25, 2014 our trading symbol changed to "STWC". Our stock is currently quoted on OTC's Pink Marketplace. The following table sets forth the high and low sales prices per share of our common stock for the periods indicated as reported by the OTC Markets Group, Inc.

		High				Low
Year ended January 31, 2019
Second Quarter		$	0.51			$	0.08
First Quarter		$	0.12			$	0.08
Year ended January 31, 2018
Fourth Quarter		$	0.25			$	0.08
Third Quarter		$	0.25			$	0.17
Second Quarter		$	0.35			$	0.17
First Quarter		$	0.44			$	0.35
Year ended January 31, 2017
Fourth Quarter		$	0.44			$	0.37
Third Quarter		$	0.38			$	0.37
Second Quarter		$	0.47			$	0.37
First Quarter		$	0.47			$	0.43

Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors. Our Board of Directors is not restricted from paying any dividends, but is not obligated to declare a dividend. No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid. The Company currently intends to retain any future earnings to finance future growth. Any future determination to pay dividends will be at the discretion of our directors and will depend on its financial condition, results of operations, capital requirements and other factors the board of directors considers relevant. The Company has not paid dividends to date.

 

Our Articles of Incorporation authorize the Board of Directors to issue up to 5,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow directors to issue preferred stock with multiple votes per share and dividend rights, which would have priority over any dividends paid with respect to the holders of common stock. The issuance of preferred stock with these rights may make the removal of management difficult, even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by management.No shares of preferred stock have been issued.

 

As of October 3, 2018, the Company had approximately 130 shareholders of record and 27,150,550 outstanding shares of common stock.

 

Not applicable.

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We were established to provide sophisticated Fulfillment Services to medical and retail stores, and cultivation facilities in the regulated cannabis industry throughout the United States. Such Fulfillment Services would only be provided to stores and facilities located in geographical areas where the governing state and local ordinances allow for the unfettered provisions of such services.

 

The Fulfillment Services that we currently are able to provide are summarized, as follows:

 

●

Opportunity Assessment: For a standard fee, we will complete an Opportunity Assessment for a client, which would include financial modeling, completed with our proprietary assessment software.

●

Application Filing Assistance: Based upon our knowledge of the various rules and regulations of respective state and local jurisdictions, we will provide turn-key application preparation and submission services for a client, and/or provide consulting assistance to a client who is self-preparing their application.

●

Branding, Marketing and Administrative Consulting Services: Customers may contract with us to use the Strainwise® name, logo and affinity images in their retail store locations. A monthly fee will permit a branding customer to use the Strainwise® brand at a specific location. In addition, we will assist operators in marketing and managing their businesses, setting up new retail locations and general business planning and execution at an hourly rate. This includes services to establish an efficient, predictable production process, as well as, nutrient recipes for consistent and appealing marijuana strains.

●

Accounting and Financial Services: For a monthly fee, we will provide customers with a fully implemented general ledger system, with an industry centric chart of accounts, which enables management to readily monitor and manage all facets of a marijuana medical dispensary and cultivation facility. We will provide bookkeeping, accounts payable processing, cash management, general ledger processing, financial statement preparation, state and municipal sales tax filings, and state and federal income tax compilation and filings.

●

Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and compliance may prove cumbersome. Thus, customers may contract with us to implement a compliance process, based upon the number and type of licenses and permits for their specific business. We will provide this service on both an hourly rate and stipulated monthly fee.

●

Lending: We will provide loans to individuals and businesses in the cannabis industry.

We do NOT grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature in any jurisdiction were such activity has not been legalized.

Historical Overview

On August 19, 2014, the Company acquired approximately 90% of the outstanding shares of Strainwise, Inc., a Colorado corporation, in exchange for 23,124,184 shares of our common stock. Strainwise was organized in Colorado on June 8, 2012 as a limited liability company, and converted to a Colorado corporation on January 16, 2014. On September 12, 2014 the Company acquired the remaining outstanding shares of Strainwise Colorado in exchange for 2,517,700 shares of our common stock.

 

Although, from a legal standpoint, the Company acquired Strainwise on August 19, 2014, for financial reporting purposes the acquisition of Strainwise constituted a recapitalization, and the acquisition was accounted for similar to a reverse merger, whereby Strainwise was deemed to have acquired the Company.

 

Because of the impact on the Regulated Entities from the regulatory factors described in Item 1 of this report, the Company, in May 2015, terminated approximately 80% of its employees and on June 30, 2015 cancelled all of the Master Service Agreements with the Regulated Entities.

Subsequent to the end of the year, during December 2017, we ceased rental related activities. As a result, these operations have been retrospectively disclosed as discontinued operations.

Results of Operations

 

Comparison of the Year Ended January 31, 2017 to the Year Ended January 31, 2016

		For the Years Ended January 31,								Change
		2017				2016				$					%
Consulting services		$	25,000			$	37,000			$	(12,000	)			(32	)
Cost of consulting services			(1,750	)			—				(1,750	)			100
Gross profit			23,250				37,000				(13,750	)			(37	)
Operating costs and expenses
Rents and other occupancy			64,230				67,421				(3,218	)			(5	)
Compensation			732,219				594,796				137,423				23
Professional, legal and consulting			182,581				381,844				(199,263	)			(52	)
Depreciation and amortization			8,575				9,001				(426	)			(5	)
General and administrative			299,789				74,507				2,25,282				302
Total operating costs and expenses			1,287,367				1,120,902				166,465				15
Loss from continuing operations			(1,264,117	)			(1,083,902	)			(180,215	)			17
Other costs and expenses			3,213				(13,341	)			16,554				(124	)
Loss from continuing operations, before provision for taxes on income			(1,260,904				(1,097,243	)			(163,661	)			15
Provision for taxes on income			—				—				—				—
Loss from continuing operations, net of tax			(1,260,904	)			(1,097,243	)			(163,661	)			15
Income (loss) from discontinued operations, net of tax			285,682				(2,396,608	)			2,682,290				(112	)
Net loss		$	(975,222	)		$	(3,493,851	)		$	2,518,629				(72	)

 

Material changes in line items in our Statement of Operations for the years ended January 31, 2017 as compared to the same period last year, are discussed below:

●

Rent and other occupancy – Rent decreased as the result of the imbedded price increases in our lease.

●

Compensation – Compensation increased as a result of discontinuing operations and our focus on our consulting services.

●

Professional, legal, and consulting – Professional fees decreased due to reduced regulatory compliance and the Company not having reduced accounting fees during the current periods.

●

General and administrative – General and administrative expenses include marketing, travel, and office expenses. These expenses fluctuate from period to period but have been driven by our shift in focus from discontinued operations to consulting services.

 

 

Liquidity and Capital Resources

Management believes the change in focus along with our substantial industry knowledge, defined growth strategy, and minimal expense structure will allow us to ultimately achieve profitability. We have restructured our operating expenses sufficiently and believe that our ongoing sources of revenue will be sufficient to cover these expenses for the foreseeable future.

 

As of January 31, 2017, we had a stockholders' deficit of $975,420 million and recurring losses from operations. To manage cash flow, we have sold our property for $1 million.

 

As of January 31, 2017, we had approximately $133,189 in cash and working deficit of $3.5 million.

 

Our Consolidated Financial Statements as of and for the year ended January 31, 2017 were prepared on the basis of a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. Accordingly, they do not give effect to adjustments that could be necessary should we be required to liquidate assets.

 

Our ability to continue as a going concern and raise capital for specific strategic initiatives could also depend on obtaining adequate capital to fund operating losses until it becomes profitable. We can give no assurances that any additional capital that it is able to obtain, if any, will be sufficient to meet its needs, or that any such financing will be obtainable on acceptable terms.

 

Our net cash flows are as follows:

		For the Years Ended January 31,
		2017				2016
Consolidated Statements of Cash Flows Data:
Net cash used in operating activities		$	(1,003,498	)		$	(2,100,455	)
Net cash used in investing activities			980,000				70,000
Net cash used in/provided by financing activities			5,376				1,647,271
Net change in cash		$	(18,122	)		$	(523,184	)

Operating Activities

Our primary uses of cash from operating activities have been for compensation expenditures, professional fees, rent expense, general and administrative expenses, payments to our vendors, and expenditures related to discontinued operations. The uses of cash from operating activities were partially offset by receipts from consulting services. Our cash flows from operating activities will continue to be affected principally by the results of operations and the extent to which we increase spending on personnel expenditures and our working capital requirements.

Investing Activities

Cash provided by investing activities was primarily from the sale of an owned facility, that is part of our discontinued operations, which is partially offset by an investment into our unconsolidated subsidiary.

Financing Activities

Our cash used in financing was primarily the result of funds used in our discontinued operations, which was partially offset by advances from related parties.

 

Trends

The factors that will most significantly affect our future operating results, liquidity and capital resources will be:

●

Our ability to find new sources of revenue;

●

Government regulation of the marijuana industry;

●

Revision of Federal banking regulations for the marijuana industry;

●

Legalization of recreational marijuana in more states; and

Other than the foregoing, we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on:

●

revenues or expenses;

●

any material increase or decrease in liquidity; or

●

expected sources and uses of cash.

Critical Accounting Policies and New Accounting Pronouncements

See Note 2 to the financial statements included as part of this report for a description of our significant accounting policies. We did not have any off-balance sheet arrangements as of January 31, 2017.

 

Not applicable.

See the financial statements and accompanying notes included as part of this report.

 

None.

 

Disclosure Controls and Procedures

Under the direction and with the participation of our management, we carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of January 31, 2017. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, and that such information is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives. Based upon this evaluation, management concluded that our disclosure controls and procedures were not effective as of January 31, 2017 primarily based on these criteria, due to material weaknesses resulting from our failure to 1) provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 2) effectively implement comprehensive entity level internal controls, and 3) adequately segregate duties within the accounting department due to an insufficient number of staff.

 

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our principal executive officer and principal financial officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of its internal control over financial reporting as of January 31, 2017 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

 

Based on this assessment, management concluded that our internal control over financial reporting was not effective as of January 31, 2017 primarily based on these criteria, due to material weaknesses resulting from our failure to 1) provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 2) effectively implement comprehensive entity level internal controls, and 3) adequately segregate duties within the accounting department due to an insufficient number of staff.

This Annual Report on Form 10-K does not include an attestation report by our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only its management's report in this Annual Report on Form 10-K.

Changes in Internal Controls.

There has been no change in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

The Annual Report on Form 10-K does not include an attestation report of our registered independent public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered independent public accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this Annual Report.

None.

 

 

 

 

PART III

 

 

Our sole Officer and Director is listed below. Our director is generally elected at the annual shareholders' meeting and hold office until the next annual shareholders' meeting or until a successor is elected and qualified. Executive officers are elected by our Director and serve at her discretion.

Name		Age		Position
Erin Phillips		39		President, Chief Financial and Accounting Officer and a Director

The following is a brief summary of the background of Erin Phillips including her principal occupation during the five preceding years.

Erin Phillips has been an officer and director of the Company since December 2011. Erin has over 18 years of operational and management experience. Erin is one of the early pioneers in the marijuana industry in Colorado and is one of the founders of the Company. In concert with her spouse, Shawn Phillips, she has been instrumental in the management of the operations of the Regulated Entities since the date they were either purchased as an existing retail store, or initially opened for medical marijuana sales beginning in 2010. Erin is responsible for managing the marketing, advertising and promotions at the Regulated Entities, and is responsible for establishing and expanding the brand recognition of the Strainwise name and logo throughout our target markets. Prior to establishing Strainwise, Erin spent 13 years in the mortgage industry as a business owner, audit and funding supervisor, title company closer, mortgage loan processer, and loan originator. Ms. Phillips filed a personal bankruptcy petition in May 2009, and received a discharge in August 2009. Erin Phillips' experience in the marijuana industry, coupled with her prior business experience, qualifies her to serve as the director of the Company.

 

Erin Phillips is not independent as that term is defined in Section 803 of the NYSE MKT Company Guide.

 

The Company does not have a financial expert, as that term is defined by the Securities and Exchange Commission.

 

Our Board of Directors does not have standing audit, nominating or compensation committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required. Our Board of Directors believes that the cost of associated with such committees, has not been justified under its current circumstances.

 

Given our limited operations to date, our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of an audit committee. None of the current Board members is an "audit committee financial expert" within the meaning of the rules and regulations of the Securities and Exchange Commission.

 

Our Board of Directors does not currently have a policy for the qualification, identification, evaluation, or consideration of board candidates and does not think that such a policy is necessary at this time, because it believes that, given the limited scope of our operations, a specific nominating policy would be premature and of little assistance until its operations are at a more advanced level. Currently the entire Board decides on nominees.

 

Our Board of Directors does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The Company does not have any restrictions on shareholder nominations under its articles of incorporation or bylaws. The only restrictions are those applicable generally under Utah law and the federal proxy rules. The Board will consider suggestions from individual shareholders, subject to an evaluation of the person's merits. Shareholders may communicate nominee suggestions directly to the Board, accompanied by biographical details and a statement of support for the nominees. The suggested nominee must also provide a statement of consent to being considered for nomination. There are no formal criteria for nominees.

 

During the year ended January 31, 2017, no officer of the Company was a member of the compensation committee or a director of another entity, which other entity had one of its executive officers serving as one of our directors.

 

Our Board of Directors does not have a "leadership structure" since each board member is free to introduce any resolution at any meeting of its directors and is entitled to one vote at any meeting.

 

 

Holders of our common stock may send written communications to its entire board of directors, or to one or more board members, by addressing the communication to "the Board of Directors" or to one or more directors, specifying the director or directors by name, and sending the communication to our offices in Lakewood, Colorado. Communications addressed to the Board of Directors as whole will be delivered to each board member. Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified.

 

Security holder communications not sent to the Board of Directors as a whole or to specified board members will be relayed to board members.

 

Our director serves until the next annual meeting of its shareholders and until their successors have been duly elected and qualified. our officer serves at the discretion of our directors. We do not compensate any person for acting as a director. Our current officer and director was elected to her position in August 2015.

 

We do not have an Incentive Stock option Plan, Non-Qualified Stock Option Plan, or a Stock Bonus Plan.

Section16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act, requires our directors and named executive officers, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities with the SEC. As a practical matter, we assist our directors and officers by monitoring transactions and completing and filing Section 16 reports on their behalf. Based solely on a review of the copies of such forms in our possession and on written representations from reporting persons, we believe that during 2017, all of our named executive officers and directors filed the required reports on a timely basis under Section 16(a) of the Exchange Act.

The following table shows compensation awarded to, earned by, or paid to our officers during the periods indicated:

 

																				All Other
Fiscal																				Annual
Year												Stock				Option				Compen-
Name and Principal		Ending		Salary				Bonus				Awards				Awards				sation
Position		January 31,			(1)				(2)				(3)				(4)				(5)		Total
Erin Phillips		2017		$	180,000				—				—				—				—			$	180,000
President, Chief		2016		$	167,189				—				--				--				--			$	167,189
Financial and
Accounting Officer
Shawn Phillips		2017			—				—				—				—				—				—
Former Chief		2016		$	79,266				—				—				—				—			$	79,266

 

1.	The dollar value of base salary (cash and non-cash) earned during the year. During the two years ended January 31, 2017 no non-cash compensation was earned by any of the persons listed in the table.
2.	The dollar value of bonus (cash and non-cash) earned during the year. During the two years ended January 31, 2017 no non-cash compensation was earned by any of the persons listed in the table.
3.	During the periods covered by the table, the value of our shares issued as compensation for services to the persons listed in the table.
4.	The value of all stock options granted during the periods covered by the table.
5.	All other compensation received that we could not properly report in any other column of the table.
6.	This person resigned his position with us on June 30, 2015.

 

The following shows the amounts we expect to pay to our officers during the twelve months ending January 31, 2018 and the amount of time these persons expect to devote to us.

Name		Projected Compensation		% of time to be devoted to our business
Erin Phillips		$ 180,000		90%

During the two years ended January 31, 2017 we did not compensate any person for acting as a director.

 

The following table shows the ownership, as of June 10, 2016, of those persons owning beneficially 5% or more of our common stock and the number and percentage of outstanding shares owned by each of our directors and officers and by all officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment power over their shares of common stock.

Name		Shares Owned		% of Outstanding Shares
Erin Phillips		23,124,184		86%
All officers and directors as  a group (one person)		23,124,184		86%

The address of each person listed above is 1350 Independence St., Suite 300 Lakewood, CO 80215.

 

As explained in Item 1 of this report, prior to June 30, 2015 substantially all of our revenue through June 30, 2015 was derived pursuant to the Master Service Agreements, all of which were cancelled on June 30, 2015, that the Company had with entities controlled by Shawn Phillips, our former officer and director, and the spouse of Erin Phillips, our sole Officer and Director.  We continued to lease cultivation facilities to entities controlled by Mr. Phillips. Subsequent to June 30, 2015, substantially all of our revenues were derived from subleases of real property to entities controlled by Shawn Phillips. Subsequent to the end of the year we discontinued leasing facilities to entities controlled by Mr. Phillips. These operations have been classified as discontinued operations.

BF Borgers CPA PC served as our independent registered public accountant for the years ended January 31, 2017 and 2016.

The following table shows the aggregate fees billed to us by BF Borgers CPA PC for the periods shown.

		Year ended January 31,
		2017				2016
Audit Fees		$	—			$	55,246
Audit-Related Fees			—				—
Tax Fees			—				—
All Other Fees			—				—
Total Fees		$	—			$	55,246

 

 

Audit fees – Consist of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our 10-K and 10-Q reports or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.

Audit-related Fees – Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees."

Tax Fees – Consist of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.

All Other Fees – Consist of fees for products and services provided by our principal accountants.

 

 

 

 

 

 

 

STWC HOLDINGS, INC.

FINANCIAL STATEMENTS

For the Years Ended January 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of STWC Holdings, Inc.:

 

We have audited the accompanying balance sheet of STWC Holdings, Inc., formerly known as Strainwise, Inc., ("the Company") as of January 31, 2017 and 2016 and the related statement of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with 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. An audit 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 statement referred to above present fairly, in all material respects, the financial position of STWC Holdings, Inc., as of January 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.

 

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 Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ B F Borgers CPA PC

B F Borgers CPA PC

Lakewood, CO

October 5, 2018

 

 

 

 

STWC HOLDINGS, INC.

CONDENSED BALANCE SHEETS

 

		January 31,
		2017				2016
ASSETS
Current assets:
Cash		$	133,189			$	151,311
Assets of discontinued operations, net			663,280				1,417,719
Total current assets			796,469				1,569,030
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $23,126 and $15,284 at January 31, 2017 and 2016, respectively			1,325				9,167
Equity method investment in unconsolidated subsidiary			39,159				11,659
Trademark, net of accumulated amortization of $2,257 and $1,525 at January 31, 2017 and 2016, respectively			8,753				9,485
Total assets		$	845,706			$	1,599,341
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	190,958			$	306,128
Due to related party			298,731				—
Liabilities of discontinued operations			3,757,471				3,719,247
Total current liabilities			4,247,160				4,025,375
Commitments and contingencies			—				—
Stockholders' deficit
Common stock, no par value, 100,000,000 shares authorized, 27,140,550 issued and outstanding at January 31, 2017 and 2016, respectively			—				—
Additional Paid in Capital			3,152,658				3,152,658
Retained deficit			(6,554,112	)			(5,578,692	)
Total stockholders' deficit			(3,401,454	)			(2,426,034	)
Total liabilities and stockholders' deficit		$	845,706			$	1,599,341

See accompanying notes.

 

STWC HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
		Year Ended January 31,
		2017				2016
Consulting services		$	23,250			$	37,000
Gross profit			23,250				37,000
Operating costs and expenses
Rents and other occupancy			64,203				67,421
Compensation			732,219				594,796
Professional, legal and consulting			182,581				381,844
Stock-based compensation			—				(6,667	)
Depreciation and amortization			8,575				9,001
General and administrative			299,789				74,507
Total operating costs and expenses			1,287,351				1,120,902
Loss from continuing operations			(1,264,101	)			(1,083,902	)
Other costs and expenses
Loss on equity investment in unconsolidated subsidiary			7,500				(13,341	)
Interest and financing costs			(4,287	)			—
Loss from continuing operations, before provision for taxes on income			(1,261,102	)			(1,097,243	)
Provision for taxes on income			—				—
Loss from continuing operations, net of tax			(1,261,102	)			(1,097,243	)
Gain/(Loss) from discontinued operations, net of tax			285,682				(2,396,608	)
Net loss		$	(975,420	)		$	(3,493,851	)
Basic earnings and fully diluted loss per common share
Continuing operations		$	(0.05	)		$	(0.04	)
Discontinued operations		$	0.01			$	(0.09	)
Basic and fully diluted weighted average number of shares outstanding			27,140,550				27,140,550

 

 

 

 

 

 

See accompanying notes.

 

STWC HOLDINGS, INC.

CONDENSED STATEMENT OF CASH FLOWS

 

 

		January 31,
		2017				2016
Cash flows from operating activities:
Net loss		$	(975,420	)		$	(3,493,851	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			7,843				8,269
Decrease in trademark			732				732
Stock-based compensation			—				(6,667	)
Increase in inventory			—				—
Increase in accounts payable and accrued expenses			(115,170	)			244,714
Increase in advances			—				—
Loss on equity investment in unconsolidated subsidiary			(7,500	)			13,341
Net cash flow used in operating activities from continuing operations			(736,540	)			(3,233,462	)
Net cash flow (used in)/provided by operating activities from discontinued operations			(266,958	)			1,133,007
Net cash flow used in operating activities			(1,003,498	)			(2,100,455	)
Cash flows from investing activities:
Investment in unconsolidated subsidiary			(20,000	)			(25,000	)
Net cash flow used in investing activities from continuing operations			(20,000	)			(25,000	)
Net cash flow provided by/(used in) investing activities from discontinued activities			1,000,000				(45,000	)
Net cash flow provided by/used in investing activities			980,000				(70,000	)
Cash flows from financing activities:
Cash advances from related parties			298,731				—
Net cash flows from financing activities from continuing operations			298,731				—
Net cash flow from financing activities from discontinued activities			(293,355	)			1,647,271
Net cash flows from financing activities			5,376				1,647,271
Net cash flows			(18,122	)			(523,184	)
Cash and equivalent, beginning of period			151,311				674,495
Cash and equivalent, end of period		$	133,189			$	151,311
Supplemental cash flow disclosures:
Cash paid for interest		$	759,526			$	635,997
Cash paid for income taxes		$	—			$	—

See accompanying notes.

 

 

STWC HOLDINGS, INC.

		Common Stock								Additional Capital In Excess of Par				Deficit
		Shares				Amount				Value				Accumulated				Total
Balance, January 31, 2015			27,147,217				—			$	2,509,325			$	(2,084,841	)		$	424,484
Beneficial conversion feature of the convertible notes			—				—				650,000				—				650,000
Stock-based compensation			(6,667	)			—				(6,667	)			—				(6,667	)
Net loss			—				—				—				(3,493,851	)			(3,493,851	)
Balance, January 31, 2016			27,140,550				—				3,152,658				(5,578,692	)			(2,426,034	)
Net loss			—				—				—				(975,420	)			(975,420	)
Balance, January 31, 2017			27,140,550				—			$	3,152,658			$	(6,554,112	)		$	(3,401,454	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 1 – Organization

STWC HOLDINGS, INC., formerly known as Strainwise, Inc., (identified in these footnotes as "STWC" "we" "us" or the "Company") provides branding marketing, administrative, accounting, financial and compliance services ("Fulfillment Services") to entities in the cannabis retail and production industry. The Company was incorporated in the state of Colorado as a limited liability company on June 8, 2012, and subsequently converted to a Colorado corporation on January 16, 2014.

The Company was established to provide sophisticated Fulfillment Services to medical and retail stores, and cultivation facilities in the regulated cannabis industry throughout the United States. Such Fulfillment Services would only be provided to stores and facilities located in geographical areas where the governing state and local ordinances allow for the unfettered provisions of such services.

The Fulfillment Services that the Company is currently able to provide are summarized, as follows:

●

Opportunity Assessment: For a standard fee, the Company will complete an Opportunity Assessment for a client, which would include financial modeling, completed with the Company's proprietary assessment software.

●

Application Filing Assistance: Based upon the Company's knowledge of the various rules and regulations of respective state and local jurisdictions, the Company will provide turn-key application preparation and submission services for a client, and/or provide consulting assistance to a client who is self-preparing their application.

●

Branding, Marketing and Administrative Consulting Services: Customers may contract with the Company to use the Strainwise® name, logo and affinity images in their retail store locations. A monthly fee will permit a branding customer to use the Strainwise® brand at a specific location. In addition, the Company will assist operators in marketing and managing their businesses, setting up new retail locations and general business planning and execution at an hourly rate. This includes services to establish an efficient, predictable production process, as well as, nutrient recipes for consistent and appealing marijuana strains.

●

Accounting and Financial Services: For a monthly fee, the Company will provide a customer with a fully implemented general ledger system, with an industry centric chart of accounts, which enables management to readily monitor and manage all facets of a marijuana medical dispensary and cultivation facility. The Company will provide bookkeeping, accounts payable processing, cash management, general ledger processing, financial statement preparation, state and municipal sales tax filings, and state and federal income tax compilation and filings.

●

Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and compliance may prove cumbersome. Thus, customers may contract with the Company to implement a compliance process, based upon the number and type of licenses and permits for their specific business. The Company will provide this service on both an hourly rate and stipulated monthly fee.

●

Lending: The Company will provide loans to individuals and businesses in the cannabis industry.

The Company does NOT grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature in any jurisdiction were such activity has not been legalized.

Note 2 – Summary of significant accounting policies

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and cash equivalents – For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents. Under current banking regulations, not all marijuana centric entities are afforded normal banking privileges. And thus, because of the Company's perceived association with the Regulated Entities, we have not been able to maintain a corporate bank account at any federally or state charted banking institution.

 

 

Tenant improvements and office equipment – Tenant improvements and office equipment are recorded at cost and is depreciated under straight line methods over each item's estimated useful life. The Company reviews tenant improvements and office equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Maintenance and repairs of property and equipment are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations.

Tenant improvements and office equipment, net of accumulated amortization and depreciation are comprised of the following:

 

		January 31,
		2017				2016
Leasehold improvements		$	2,200			$	2,200
Office equipment, furniture and fixtures			22,251				22,251
			24,451				24,451
Accumulated amortization and depreciation			(23,126	)			(15,284	)
		$	1,325			$	9,167

 

Tenant improvements are amortized over the term of the lease, and office equipment is depreciated over its useful lives, which has been deemed by management to be three years. Amortization and depreciation expense related to tenant improvements and office equipment for the fiscal years ended January 31, 2017 and 2016 was $1,576 and $7,843, respectively.

Income taxes – The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Investment in Unconsolidated Entity – The Company acquired a 50% interest in SentinelStrainwise, LLC ("SSL") in June 2015 for $25,000. The Company accounts for its investment SSL using the equity method based on the ownership interest. Accordingly, the investment was recorded at cost, and adjustments to the carrying amount of the investment to recognize the Company's share of the earnings or losses of SSL are made in each reporting period. In accordance with Accounting Standard Codification 810-10, Consolidation-Overall, we evaluated the fair value of the Company's investment in SLL and determined that there no adjustment required to the carrying amount of the Company's original investment, other than the recognition of the Company's share of the operating income of $7,500 for the period.

Long-Lived Assets – In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.

 

Trademarks – Trademarks and other intangible assets are stated at cost and are amortized using the straight-line method over fifteen years. Accumulated amortization was $2,257 and $1,525 at January 31, 2017 and 2016, respectively, and consisted of the following at January 31, 2017:

 

		Gross Carrying Amount				Accumulated Amortization				Net
Trademarks		$	11,010			$	2,257			$	8,753

 

Discontinued Operations – During November 2017, the Company settled all remaining operations related to its rental activities with regulated entities. As a consequence of the disposition, the operating results and the assets and liabilities of the discontinued operations, which formerly comprised the rental operations, are presented separately in the Company's financial statements. Summarized financial information for the discontinued rental business is shown below. Prior period balances have been reclassified to present the operations of the rental business as a discontinued operation.

 

 

Discontinued Operations Income Statement
		Year Ended January 31,
		2017				2016
Rental income from the Regulated Entities (Affiliates)		$	3,895,191			$	4,260,917
Total revenues			3,895,191				4,260,917
Operating costs and expenses
Reserve for amounts due from Regulated Entities (Affiliates)			(698,854	)			928,002
Rents and other occupancy			3,271,179				3,877,336
Depreciation and amortization			183,105				218,559
General and administrative			12,471				—
Total operating costs and expenses			2,767,901				5,023,897
Income (loss) from continuing operations			1,127,290				(762,980	)
Other income and (expenses)
Interest expense			(1,044,590	)			(1,088,338	)
Loss on cancellation of lease and related tenant improvement loan			—				(62,503	)
Loss on settlement and cancellation of leases			—				(100,100	)
Gain on sale of assets			376,935				—
Income (loss) from discontinued operations, net o		$	459,635			$	(2,013,921	)

 

Discontinued Operations Balance Sheet
		January 31,
		2017				2016
ASSETS
Due from Regulated Entities (Affiliates), net of collection allowance  reserve of $2,523,681 and $3,222,535 at January 31, 2017 and 2016, respectively		$	—			$	—
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $147,271 and $62,024 at January 31, 2017 and 2016, respectively			353,940				630,386
Commercial operating property, net of accumulated amortization of $5,641 and $22,667 at January 31, 2017 and 2016, respectively			109,340				637,333
Prepaid expenses and other assets			200,000				150,000
Total assets		$	663,280			$	1,417,719
LIABILITIES
Accounts payable and accrued expenses		$	55,102			$	34,477
Settlement of equipment advance payable			—				150,100
Accrued interest payable			423,522				138,458
Deferred rent and discount on mortgage payable			1,102,857				965,319
Mortgage payable			—				357,010
Convertible notes payable			—				2,073,883
Notes payable			2,000,000				—
Total liabilities		$	3,581,499			$	3,719,247

 

 

In addition to discontinuing rental activities, the Company discontinued providing services under the Master Service agreements to the Regulated Entities on June 30, 2015. There were no components of major assets and liabilities associated with the discontinued operations at January 31, 2017 and 2016. The summarized discontinued operating results for the years ended January 31, 2017 and 2016, respectively, are, as follows:

Comprehensive Income (Loss) - Comprehensive income is defined as all changes in stockholders' equity (deficit), exclusive of transactions with owners, such as capital investments. Comprehensive income includes net income or loss, changes in certain assets and liabilities that are reported directly in equity such as translation adjustments on investments in foreign subsidiaries and unrealized gains (losses) on available-for-sale securities. Since the Company's inception there have been no differences between the Company's comprehensive loss and net loss.

Net income per share of common stock - We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. 

 

The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and ensure that there are proper controls in place to ascertain that the Company's financial statements properly reflect the change. New pronouncements assessed by the Company recently are discussed below:

 

In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of ASU 2016-15.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition- Construction-Type and Production-Type Contracts. ASU 2014-09's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today's guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"), which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective for the Company in the first quarter of 2018. The Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. The Company intends to apply the modified retrospective approach upon adoption in the first quarter of 2018. The new standard will not impact the Company's revenue. The new standard will not have a material impact on the timing or classification of the Company's cash flows as reported in the Consolidated Statement of Cash Flows and is not expected to have a significant impact on the Company's Consolidated Statement of Operations. The Company does not anticipate any adjustments as a result of implementing the new standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases ("ASU 2016-02"). The guidance in this new standard requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to the current accounting and eliminates the current real estate-specific provisions for all entities. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02.

 

In July 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which among other things, these amendments require the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of evaluating the impact of the pronouncement.

Note 3 – Going concern:

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, we have not achieved profitable operations, and have cumulative losses through January 31, 2017 of $6.6 million. the Company's losses to date raise substantial doubt about our ability to continue as a going concern. the Company's ability to continue as a going concern is dependent upon the Company achieving a sustainable level of profitability. The Company intends to continue financing its future development activities and its working capital needs largely from the private sale of the Company's securities, with additional funding from other traditional financing sources, including convertible term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. However, the financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 – Fair value of financial instruments

The carrying amounts of cash and current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The Company does not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of the Company's foreign exchange, commodity price or interest rate market risks.

 

The FASB Codification clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

 

Level 1:

Quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.

 

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Note 5 – Investment in Unconsolidated Subsidiary:

Effective June 12, 2015, we purchased a 50% interest in SentinelStainwise, LLC ("SSL"), which was recorded at the Company's cost of $25,000 using the equity method of accounting. SSL is 50% owned by Sentinel, Inc. and the Company. It was formed for the purpose of providing consulting services to Native American entities that are considering participating in the marijuana industry. In accordance with Accounting Standard Codification 810-10, Consolidation – Overall, we remeasured the Company's held equity interest at the acquisition-date fair value, reduced by any operating income of $7,500 for the period on the Company's investment in SSL.

 

Fair value of 50% interest at January 31, 2016		$	11,659
Investment during current period			20,000
Recognition of operating income of the current period			7,500
Fair value at January 31, 2017		$	39,159

SSL recently began operations during the year ended 2016, and since there is little or no market data for SSL, our investment has been deemed a level 3 investment for valuation purposes. Thus, we used unobservable inputs to determine the fair market value of our investment in SSL at January 31, 2017, and it is management's belief that the fair market value of our investment in SSL is $39,159, which is the amount of the Company's original investment, less operating losses incurred through January 31, 2017.

Note 6 – Income Taxes:

The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company's assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.

The Company adopted the provisions of ASC 740, "Income Taxes" on July 1, 2007. FASB ASC 740 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold at the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. The components of the income tax provision are as follows:

		Year Ended January 31,
		2017				2016
Income tax expense (benefit):
Current:
Federal		$	(345,893	)		$	(1,316,263	)
State			(41,911	)			(161,765	)
Deferred income tax expense (benefit):			(387,804	)			(1,478,028	)
Valuation allowance			387,804				1,478,028
Provision		$	—			$	—

We have a net operating loss carryforward for financial statement reporting purposes of $6,554,112 and $5,578,692 from the years ended January 31, 2017 and 2016, respectively.

The Company issued 198,333 shares of common stock as compensation to employees during the year ended January 31, 2015, and recognized $198,333 of expense. The shares were fully vested upon issuance and were valued at $1.00 per share, the value on the grant date of January 31, 2015. Approximately $6,667 previously recognized as stock-based compensation was not distributed in the form of compensation, and thus, a reduction of additional paid in capital in the like amount of $6,667 recognized during the year ended January 31, 2016.

 

Note 8 - Operating Leases

The Company entered into a lease agreement with an affiliate for the Company's corporate office needs, consisting of 6,176 square feet of office space. The lease originally provided for a 31-month period, that commenced in January 2014 through October 31, 2016. The lease was extended in November 2016 for a 5-year period ending October 31, 2021. This lease to the Company is on the same terms and conditions as is the direct lease between the affiliate and the independent lessor. Consequently, the Company believes that the lease terms to the Company are comparable to lease terms the Company would receive directly from third party lessors in the Company's market, because the related party terms mirror the terms of the direct lease between the independent, third party lessor and the affiliated entity.

 

During the years ended January 31, 2017 and 2016, rent expense for each period was $64,203 and $67,421, respectively.

 

As of January 31, 2017, future minimum lease payments are as follows:

 

For the Fiscal Year Ending January 31,
2018		$	53,250
2019			54,250
2020			55,250
2021			56,250
2022			42,750
Thereafter			—
Total minimum lease payments		$	261,750

Note 11 – Subsequent Events

GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued ("subsequent events") as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, ("recognized subsequent events"). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date ("non-recognized subsequent events").

Recognized Subsequent Events

Subsequent to the end of the quarter the Company discontinued its rental of real property business and cancelled all remaining leases and settled all remaining related operations. These operations are now presented as discontinued operations on the Company's financial statements. A summary of the discontinued operations is included in Note 2 – Summary of Significant Accounting Policies.

 

Unrecognized Subsequent Events

 

 

 

 

For additional information on the above subsequent events see the Company's Current Report on Form 8-K filed with the SEC on June 19, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART IV

 

 

Exhibit No.		Description of Exhibit
2.1		Agreement to Exchange Securities (2)
2.2		Plan of Merger (3)
3.1(a)		Articles of Incorporation (1)
3.1(b)		Articles of Amendment dated July 21, 2004 (1)
3.1 (c)		Amendment to Articles of Incorporation dated September 5, 2014 (3)
3.3		Bylaws (1)
10.1		Exchange Option (3)
10.2		Custer Lease (2)
10.3		51st Ave. Lease (2)
10.4		Nome Lease (2)
10.5		32nd Ave. Lease (2)
10.6		Form of Master Service Agreement, together with schedule required by Instruction 2 to Item 601(a) of Regulation S-K (2)
10.7		Lock-Up/Leak-Out Agreements, together with schedule required by Instruction 2 to Item 601(a) of Regulation S-K (3)
10.8		Non-Disclosure/Non-Compete Agreements (3)
10.9		Bryant Street Lease (4)
10.10		Loan Agreement/Randall Taylor (4)
10.11		Promissory Note, Deed of Trust and Security Agreements 5110 Race Street Property (4)
10.12		Lease – 5110 Race Street (6)
10.13		Federal Heights Lease (6)
10.14		Form of Amended and Restated Senior Loan Agreement, 25% Convertible Promissory Note, Personal Guaranty Agreement and Subsidiary Guaranty Agreement, together with schedule required by instruction 2 to the Item 601 (a) of regulation S-K. (6)
21		Subsidiaries (3)
31		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification pursuant to Section 906 of the Sarbanes-Oxley Act.

(1)	Incorporated by reference to the same exhibit filed with the Company's amended registration statement on Form 10-SB filed on October 29, 2007.
(2)	Incorporated by reference to the same exhibit filed with the Company's 8-K report filed on August 21, 2014.
(3)	Incorporated by reference to the same exhibit filed with the Company's registration statement on Form S-1 (File No. 333-52825).
(4)	Incorporated by reference to the same exhibit filed with Amendment No. 1 to the Company's registration statement on Form S-1 (File #333-198797).
(5)	Incorporated by reference to the same exhibit filed with Amendment No. 2 to the Company's registration statement on Form S-1 (File #333-198797).
(6)	Incorporated by reference to the same exhibit filed with Amendment No. 3 to the Company's registration statement on Form S-1 (File .#333-198797).

 

 

SIGNATURES

 

In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	STWC HOLDINGS, INC.
October 5, 2018	By:	/s/ Erin Phillips
		Erin Phillips, Principal Executive Officer

 

 

Pursuant to the requirements of the Securities Exchange Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

Signature		Title		Date
/s/ Erin Phillips		President, Principal Financial		October 5, 2018
Erin Phillips		and Accounting Officer
		and a Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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