ITEM 1. BUSINESS
General
On August 19, 2014, pursuant to an Agreement to Exchange Securities (the "Agreement"), the Company (formerly named 4th 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.
In connection with the acquisition of Strainwise Colorado:
●
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 5, 2014 the Company changed its name to Strainwise, Inc.
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:
●
the Company issued 1,112,350 Series A warrants to former Strainwise Colorado shareholders in exchange for a like number of warrants held by the former Strainwise Colorado shareholders. The Series A warrants the Company issued have the same terms as the warrants exchanged by the former Strainwise Colorado shareholders (exercise price: $5.00 per share/expiration date: January 31, 2019).
●
the Company issued 500,000 warrants to one non-affiliated person in exchange for a like number of warrants held by the former Strainwise Colorado warrant holder. The warrants the Company issued have the same terms as the warrants exchanged by the former Strainwise Colorado warrant holder (exercise price: $0.10 per share/expiration date: January 31, 2019).
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.
Warm Springs Native American Tribe
The Company has a fifty percent equity interest in Sentinel Strainwise, LLC, a joint venture between the Company 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.
In April 2016, the joint venture signed an agreement with the Confederated Tribes of Warm Springs to assist the Tribe in the creation of a cannabis economic development project on the Tribes' reservation in Oregon. The economic development project includes a 36,000 square foot cultivation facility which will be constructed on a five-acre parcel on the reservation plus three off-reservation dispensaries which will be located in major metropolitan urban areas in the state Oregon. Funding for the project will be through the Tribe's Business Investment Revolving Fund ($1.2 million), and a construction loan from Sentinel Capital Funding ($4 million).
The joint venture will be paid certain fees by the Tribe and will have a five-year revenue sharing interest in the cultivation facility and marijuana dispensaries.
Government Regulation
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 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 May 25, 2016, 23 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 the Company and its shareholders. While the Company does not intend to harvest, distribute or sell cannabis, the Company may be irreparably harmed by a change in enforcement by the federal or state governments or the enactment of new and more restrictive laws.
General
The Company's offices are located at 1350 Independence Street, Suite 300, Lakewood, CO 80215. We lease our offices from an entity controlled by Erin Phillips, the President and a director of the Company. 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:
As of October 3, 2018, we had four full time employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
See Item 1 of this report for discussion of our lease in Lakewood, which is our only property interest.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
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.
Holders of the Company's 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. We currently intend to retain any future earnings to finance future growth. Any future determination to pay dividends will be at the discretion of the Company's 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 8, 2018, the Company had approximately 130 shareholders of record and 27,150,550 outstanding shares of common stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
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 the 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, we, 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.
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, 2018 to the Year Ended January 31, 2017
Material changes in line items in our Statement of Operations for the years ended January 31, 2018 as compared to the same period last year, are discussed below:
●
Rent and other occupancy - Rent increased for the three and nine months as the result of the price escalation in our lease and additional charges.
●
Compensation - Compensation decreased as a result of discontinuing operations and our focus on our consulting services.
●
Professional, legal, and consulting - Professional fees increased due to reduced regulatory compliance.
●
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, 2018, we had a stockholders' deficit of $945,003 million and recurring losses from operations. To manage cash flow, we have utilized credit from vendors, borrowed from related parties, and secured third party financing. We have also terminated our leasing and related subleasing of facilities from related parties and settled all lease fees. We are now positioned to focus on our consulting services.
As of January 31, 2018, we had approximately $27,925 in cash and working deficit of $839,148.
Our Consolidated Financial Statements as of and for the year ended January 31, 2018 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:
Operating Activities
Our cash used in operating activities is driven primarily have been for inventory purchases, compensation expenditures, professional fees, rent expense, and general and administrative expenses. Cash used has been partially offset by consulting revenue, income from discontinued operations, advances from customers, and vendor provided credit. 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 discontinued operations was the result of the settlement of regulated affiliate balances
Financing Activities
Our cash used in financing from continuing operations was primarily the result of loans on the Puerto Rico note, which is partially offset by repayments to related parties. Our cash used in financing activities was to settle amounts under note obligations.
Trends
The factors that will most significantly affect the 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements and accompanying notes included as part of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
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, 2018. We maintain 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, 2018 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, 2018 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, 2018 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 us 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.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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.
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 our officer and director since August 2014. Erin has over 19 years of operational and management experience. Erin is one of the early pioneers in the marijuana industry in Colorado and is one of our founders. 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 our director.
Erin Phillips is not independent as that term is defined in Section 803 of the NYSE MKT Company Guide.
We do 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 the Company's 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. We do 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, 2018, none of our officers were members 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 do 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. The Company's officer serves at the discretion of the Company's 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows compensation awarded to, earned by, or paid to our officers during the periods indicated:
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.
The following shows the amounts we expects to pay to its officers during the twelve months ending January 31, 2019 and the amount of time these persons expect to devote to us.
During the two years ended January 31, 2018 we did not compensate any person for acting as a director.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table shows the ownership, as of September __, 2018, of those persons owning beneficially 5% or more of the Company's 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.
The address of each person listed above is 1350 Independence St., Suite 300 Lakewood, CO 80215.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We leased cultivation facilities to entities controlled by Mr. Phillips through November 2018. We have discontinued leasing facilities to entities controlled by Mr. Phillips. These operations have been classified as discontinued operations.
We have entered into management and licensing agreements with a private entity in Puerto Rico 49% owned by Erin Phillips to operate five dispensaries and two cultivation operations in Puerto Rico. While public companies are not currently allowed to own a beneficial interest in licensed cannabis businesses in Puerto Rico, we intend to negotiate the right to acquire the private company at an agreed to price in the event that regulations permit public company ownership in the future.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
BF Borgers CPA PC served as our independent registered public accountant for the years ended January 31, 2018 and 2017.
The following table shows the aggregate fees billed to us by BF Borgers CPA PC for the periods shown.
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, 2018 and 2017
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, 2018 and 2017 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, 2018 and 2017, 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 8, 2018
STWC HOLDINGS, INC.
CONDENSED BALANCE SHEETS
See accompanying notes.
See accompanying notes.
STWC HOLDINGS, INC.
CONDENSED STATEMENT OF CASH FLOWS
See accompanying notes.
STWC HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICT)
For the Years Ended January 31, 2018 and 2017
STWC HOLDINGS, INC.
Notes to the Audited Financial Statements
January 31, 2018 and 2017
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 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 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 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 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.
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.
Prepaid expenses and other assets - Prepaid expenses and other current assets consist of various payments the Company has made in advance for goods or services to be received in the future. As of January 31, 2018 prepaid expenses included only up-front payments for the purchase of inventory.
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:
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, 2018 and 2017 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. We account for the Company's 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, 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, other than the recognition of the Company's share of the operating loss $24,159 for the period.
SSL was dissolved during 2018.
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 $2,989 and $2,257 at January 31, 2018 and 2017, respectively, and consisted of the following at January 31, 2018:
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.
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.
Recently Issued Accounting Pronouncements
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, 2018 of $6.2 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's 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. We do 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 - 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, management believes that the lease terms to the Company are comparable to lease terms we 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 year's ended January 31, 2018 and 2017, rent expense was $67,927 and $64,203, respectively.
As of January 31, 2018, future minimum lease payments are as follows:
Note 6 - Notes Receivable
The Company entered into management and licensing agreements with a private entity in Puerto Rico 49% owned by Erin Phillips to operate five dispensaries and two cultivation operations in Puerto Rico. In conjunction with these agreements, the Company as begun providing funds to operate the Puerto Rico operations, which will be evidenced by a promissory note. The terms have not been finalized on this note and currently there is no specified terms to the agreement. Through January 31, 2018 the Company has advanced $94,061 related to the note. For additional information see the Company's Current Report on Form 8-K filed with the SEC on June 19, 2018.
Note 7 - 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:
We have a net operating loss carryforward for financial statement reporting purposes of $6,164,832 and $6,554,112 from the years ended January 31, 2018 and 2017, respectively.
Note 8 - Due to Related Party
The Company borrowed $192,239 from related parties to fund operations during the year ended January 31, 2018. The loans do not carry an interest rate and do not have a maturity date. As of January 31, 2018, and 2017, the Company owed related parties $490,970 and $298,731, respectively.
Note 9 - Contingencies
Subsequent to the end of the quarter, the Company was 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 the Company's Current Report on Form 8-K filed with the SEC on June 19, 2018.
Note 10 - 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
None.
Unrecognized Subsequent Events
None.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(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 (File #000-52825).
(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 the Company 8-K filed on June 19, 2018 (File #000-52825).
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.
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.