STWC. Holdings, Inc. - Quarter Report: 2017 April (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 1934

For the quarterly period ended April 30, 2017

☐   Transition Report Under Section 13 or 15(d) of the Securities Exchange Act Of 1934

For the transition period from _______________ to _______________

 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 offices)		(Zip Code)

Check whether the issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☐   No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "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	☒
			Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 27,140,550 shares of common stock as of October 3, 2018.

 

 

 

STWC HOLDINGS, INC.

INTERIM FINANCIAL STAEMENTS

For the Three Months Ended April 30, 2017 and 2016

(UNAUDITED)

 

 

		April 30, 2017				January 31, 2017
		(Unaudited)
ASSETS
Current assets:
Cash		$	62,227			$	133,189
Accounts Receivable			3,000				—
Assets of discontinued operations, net			621,268				663,280
Total current assets			686,495				796,469
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $24,003 and $23,126 at April 30, 2017 and January 31, 2017, respectively			448				1,325
Equity method investment in unconsolidated subsidiary			39,159				39,159
Notes receivable			4,000				—
Trademark, net of accumulated amortization of $2,440 and $2,257 at April 30, 2017 and January 31, 2017, respectively			8,570				8,753
Total assets		$	738,672			$	845,706
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		$	344,682			$	190,958
Due to related party			367,360				298,731
Liabilities of discontinued operations			3,876,726				3,757,471
Total current liabilities			4,588,768				4,247,160
Commitments and contingencies			—				—
Stockholders' deficit
Common stock, no par value, 100,000,000 shares authorized, 27,140,550 issued and outstanding at April 30, 2017 and January 31, 2017, respectively			—				—
Additional Paid in Capital			3,152,658				3,152,658
Retained deficit			(7,002,754	)			(6,554,112	)
Total stockholders' deficit			(3,850,096	)			(3,401,454	)
Total liabilities and stockholders' deficit		$	738,672			$	845,706

STWC HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
		For the Three months Ended April 30,
		2017				2016
Consulting services		$	128,500			$	—
Cost of consulting services			(58,693	)			—
Gross profit			69,807				23,250
Operating costs and expenses
Rents and other occupancy			13,250				16,985
Compensation			120,979				163,231
Professional, legal and consulting			19,003				96,267
Depreciation and amortization			1,060				2,250
General and administrative			87,314				44,339
Total operating costs and expenses			241,606				323,072
Loss from continuing operations			(171,799	)			(323,072	)
Other costs and expenses
Loss on equity investment in unconsolidated subsidiary			—				—
Interest and financing costs			(530	)			(2,516	)
Loss from continuing operations, before provision for taxes on income			(172,329	)			(325,588	)
Provision for taxes on income			—				—
Income/(loss) from continuing operations, net of tax			(172,329	)			(325,588	)
Loss from discontinued operations, net of tax			(276,313	)			(320,366	)
Net income/(loss)		$	(448,642	)		$	(645,954	)
Basic earnings and fully diluted loss per common share
Continuing operations		$	(0.01	)		$	(0.01	)
Discontinued operations		$	(0.01	)		$	(0.01	)
Basic and fully diluted weighted average number of shares outstanding			27,140,550				27,140,550

		For the Three Months Ended April 30,
		2017				2016
Cash flows from operating activities:
Net (loss)		$	(448,642	)		$	(645,954	)
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease (Increase) in prepaid expenses and other assets			—				—
Depreciation and amortization			877				2,067
Decrease in trademark			183				183
Increase in accounts receivable			(3,000	)			—
Increase in accounts payable and accrued expenses			153,724				(17,543	)
Net cash flow used in operating activities from continuing operations			(296,858	)		(661,247		)
Net cash flow used in operating activities from discontinued operations			161,267				579,165
Net cash flow used in operating activities			(135,591	)			(82,082	)
Cash flows from investing activities:
Purchase of equipment			—				—
Net cash flow used in investing activities from continuing operations			—				—
Net cash flow used in investing activities from discontinued activities			—				—
Net cash flow used in investing activities			—				—
Cash flows from financing activities:
Cash advances for Puerto Rico notes receivable			(4,000	)			—
Cash advances from related parties			68,629				—
Net cash flows from financing activities from continuing operations			64,629				—
Net cash flow from financing activities from discontinued activities			—				(43,881	)
Net cash flows from financing activities			64,629				(43,881	)
Net cash flows			(70,962	)			(125,963	)
Cash and equivalent, beginning of period			133,189				151,311
Cash and equivalent, end of period		$	62,227			$	25,348
Supplemental cash flow disclosures:
Cash paid for interest		$	42,809			$	47,482
Cash paid for income taxes		$	—			$	—

		Common Stock								Additional Capital In Excess of Par				Deficit
		Shares				Amount				Value				Accumulated				Total
Balance, January 31, 2017			27,140,550				—				3,152,658				(6,554,112	)			(3,401,454	)
Net Loss			—				—				—				(448,642	)			(448,642	)
Balance, April 30, 2017			27,140,550				—			$	3,152,658			$	(7,002,754	)		$	(3,850,096	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, the Company considers 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, the Company has 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. Management reviews the Company's 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:

 

		April 30, 2017				January 31, 2017
Leasehold improvements		$	2,200			$	2,200
Office equipment, furniture and fixtures			22,251				22,251
			24,451				24,451
Accumulated amortization and depreciation			(24,003	)			(23,126	)
		$	448			$	1,325

 

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 three months ended April 30, 2017 and 2016 was $877 and $2,067, 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 our share of the earnings or losses of SSL are made in each reporting period. In accordance with Accounting Standard Codification 810-10, Consolidation-Overall, management 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 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 $2,440 and $2,257 at April 30, 2017 and January 31, 2017, respectively, and consisted of the following at April 30, 2017:

		Gross Carrying Amount				Accumulated Amortization				Net
Trademarks		$	11,010			$	2,440			$	8,570

 

Discontinued Operations – During November 2017, the Company settled all remaining operations related to its rental activities with regulated entities. As a consequence of the sale, 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 Balance Sheet
		April 30, 2017				January 31, 2017
ASSETS
Due from Regulated Entities (Affiliates), net of collection allowance reserve of $3,086,174 and $2,523,681 at April 30, 2017 and January 31, 2017, respectively		$	—			$	—
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $176,539 and $147,271 at April 30, 2017 and January 31, 2017, respectively			324,672				353,940
Commercial operating property, net of accumulated amortization of $94,604 and $81,860 at April 30, 2017 and January 31, 2017, respectively			96,596				109,340
Prepaid expenses and other assets			200,000				200,000
Total assets		$	621,268			$	663,280
LIABILITIES
Accounts payable and accrued expenses		$	348,570			$	231,092
Accrued interest payable			423,522				423,522
Deferred rent			1,104,634				1,102,857
Notes payable			2,000,000				2,000,000
Total liabilities		$	3,876,726			$	3,757,471

 

 

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 – The Company has 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. The Company evaluated all new accounting pronouncements and deemed none resulted in changes to the financial statements.

 

Note 3 – Going concern:

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has not achieved profitable operations, and have cumulative losses through April 30, 2017 of $7.09 million. The Company's losses to date raise substantial doubt about the Company's 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. Management does not hold or issue financial instruments for trading purposes, nor do the Company 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.

 

 

 

During the three months ended April 30, 2017 and 2016, rent expense was $13,250 and $16,985, respectively.

As of April 30, 2017, future minimum lease payments are as follows:

 

For the Fiscal Year Ending January 31,
Remainder of 2018		$	40,000
2019			54,250
2020			55,250
2021			56,250
2022			42,750
Thereafter			—
Total minimum lease payments		$	248,500

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").

 

 

 

 

 

 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Overview

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.

 

Prior to December 2017, we provided rental related activities to with regulated entities, that have been discontinued.

 

		For the Three Months Ended April 30,								Change
		2017				2016					$			%
Consulting services		$	128,500			$	—			$	128,500				100
Cost of consulting services			(58,693	)			—				(58,693	)			100
Gross profit			69,807				—				69,807				100
Operating costs and expenses
Rents and other occupancy			13,250				16,985				(3,735	)			(22	)
Compensation			120,979				163,231				(42,252	)			(26	)
Professional, legal and consulting			19,003				96,267				(77,264	)			(80	)
Depreciation and amortization			1,060				2,250				(1,190	)			(53	)
General and administrative			87,314				44,339				42,975				97
Total operating costs and expenses			241,606				323,072				(81,466	)			(25	)
Loss from continuing operations			(171,799	)			(323,072	)			151,273				(47	)
Other costs and expenses			(530	)			(2,516	)			1,986				(79	)
Loss from continuing operations, before provision for taxes on income			(172,329	)			(325,588	)			153,259				(47	)
Provision for taxes on income			—				—				—				—
Loss from continuing operations, net of tax			(172,329	)			(325,588	)			153,259				(47	)
Income (loss) from discontinued operations, net of tax			(276,313	)			(320,366	)			44,053				(14	)
Net income/(loss)		$	(448,642	)		$	(645,954	)		$	197,312				(31	)

		For the Three Months Ended April 30,
		2017				2016
Consolidated Statements of Cash Flows Data:
Net cash used in operating activities		$	(135,591	)		$	(82,082	)
Net cash used in investing activities			—				—
Net cash used in/provided by financing activities			64,629				(43,881	)
Net change in cash		$	(70,962	)		$	(125,963	)

 

 

 

PART II

Item 1.     Legal Proceedings

None.

Item 1A.  Risk Factors

None.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities.

None.

Item 4.     Mine Safety Disclosures

None.

Item 5.     Other Information.

None.

Item 6.     Exhibit Index

 

				Incorporated by Reference
Exhibit No.		Description		Form		SEC File  Number		Exhibit		Filing Date
31.1**		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1***		Certification of the Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**		The following materials from STWC Holdings, Inc.'s quarterly report on Form 10-Q for the three months ended April 30, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Statement of Changes in Stockholders' Deficit; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements.

 

*	Indicates management contract or compensatory plan or arrangement.
**	Filed herewith
***	Furnished herewith

 

 

SIGNATURES

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

 

 

	STWC HOLDINGS, INC.
October 3, 2018	By:	/s/ Erin Phillips
		Erin Phillips, President, Chief Financial and
		Accounting Officer