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EX-32.1 - STWC HOLDINGS 10Q, CERTIFICATION 906, CEO/CFO - STWC. Holdings, Inc.stwchexh32_1.htm
EX-31.2 - STWC HOLDINGS 10Q, CERTIFICATION 302, CFO - STWC. Holdings, Inc.stwchexh31_2.htm
EX-31.1 - STWC HOLDINGS 10Q, CERTIFICATION 302, CEO - STWC. Holdings, Inc.stwchexh31_1.htm

 
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
 
STWC HOLDINGS, INC
(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.
 
 
1

 
STWC HOLDINGS, INC.

INTERIM FINANCIAL STAEMENTS

For the Three Months Ended April 30, 2017 and 2016

(UNAUDITED)
 
 
STWC HOLDINGS, INC.
CONDENSED BALANCE SHEETS
 
   
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
 





 
See accompanying notes.
2

 
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
 
 
 
 
 
See accompanying notes.
 
3


 
STWC HOLDINGS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
 
 
   
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
 
$
   
$
 




See accompanying notes.
 
4

 
STWC HOLDINGS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICT)
(Unaudited)
 

 
   
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
)



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

5


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.
 
6

 
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.
 
 
7

 
Discontinued Operations Income Statement
 
       
   
Three Months Ended April 30,
 
   
2017
   
2016
 
             
Rental income from the Regulated Entities (Affiliates)
 
$
928,798
   
$
973,798
 
Total revenues
   
928,798
     
973,798
 
Operating costs and expenses
               
Reserve for amounts due from Regulated Entities (Affiliates)
   
331,030
     
(54,526
)
Rents and other occupancy
   
789,789
     
821,199
 
Depreciation and amortization
   
42,013
     
44,662
 
Total operating costs and expenses
   
1,162,832
     
811,335
 
Operating (loss)/income from discontinued operations
   
(234,034
)
   
162,463
 
Other income and (expenses)
               
Interest expense
   
(42,279
)
   
(482,829
)
Loss from discontinued operations
 
$
(276,313
)
 
$
(320,366
)
 
The Company anticipates continued expenses through the end of calendar 2017 related to the discontinued operations.
 
The individual assets and liabilities of the discontinued agricultural business are combined in the captions "Assets of discontinued operation" and "Liabilities of discontinued operation" in the consolidated Balance Sheet. The carrying amounts of the major classes of assets and liabilities included part of the discontinued business are presented in the following table:
 
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
 
 
8

 
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. 

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. 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.
 
9

 
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, the Company believes that the lease terms to the Company are comparable to lease terms the Company would receive directly from third party lessors in the Company's market, because the related party terms mirror the terms of the direct lease between the independent, third party lessor and the affiliated entity.
 
During the 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
 

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 April 30, 2017 the Company has advanced $4,000 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 – Due to Related Party

The Company borrowed $68,629 from related parties to fund operations during the three months ended April 30, 2017. The loans do not carry an interest rate and do not have a maturity date. As of April 30, 2017 and January 31, 2017, the Company owed related parties $367,360 and $298,731, respectively.

Note 8 – 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 9Subsequent 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").
 
10

 
 
Recognized Subsequent Events

Subsequent to the end of the quarter the Company discontinued its rental of real property business and cancelled all remaining leases and settled all remaining related operations. These operations are now presented as discontinued operations on the Company's financial statements. A summary of the discontinued operations is included in Note 2 – Summary of Significant Accounting Policies.
 
Unrecognized Subsequent Events
 
Subsequent to the end of the quarter the Company expects to dissolve Sentinel Strainwise, LLC in 2018. The agreement between the Company and the Confederated Tribes of Warm Springs described in the Company's 10-K report for the period ending January 31, 2016 was terminated on or around December 22, 2016. As a result of the termination of the agreement, the funds held by Sentinel Strainwise, LLC, a joint venture company in which the Company holds 50% equity interest, were distributed back to the partners of the joint venture.
 
Subsequent to the end of the quarter, the Company has 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, the Company intends 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.
 
Subsequent to the end of the quarter, in order to continue to fund ongoing California operations, on or around April 6, 2018, the Company entered into a loan agreement ("Loan Agreement") with Green Acres Partners, LLC, a California limited liability company ("Green Acres") whereby Green Acres agreed to loan the Company $205,000 in exchange for a promissory note ("Note") issued by the company in the principal amount of $205,000. The Note matures no later than September 1, 2020, with payments to begin no later than September 1, 2018; however, payments may begin sooner than such date in the event operations in San Diego begin sooner. The Note carries an interest rate of 12% per year, with an 18% default interest rate. The principal balance of the Note may be accelerated upon default or transfer. This discussion of the Note and loan agreement is qualified in its entirety by the provisions of those documents, which are attached hereto as Exhibits. The Company will require additional capital, which it may be required to raise on unfavorable terms, in order to continue its operations.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11


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.
 
12

 
Results of Operations

Comparison of the Three Months Ended April 30, 2017 to the Three Months Ended April 30, 2016
   
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
)
                                 
Material changes in line items in our Statement of Operations for the three months ended April 30, 2017 as compared to the same period last year, are discussed below:
 
Rent and other occupancy – Rent decreased for the three and six months as the result of the restructured lease rates in our lease.
Compensation – Compensation decreased as a result of discontinuing operations and our focus on our consulting services.
Professional, legal, and consulting – Professional fees decreased due to reduced regulatory compliance and the Company not having reduced accounting fees during the current periods.
General and administrative – General and administrative expenses include marketing, travel, and office expenses. These expenses fluctuate from period to period but have been driven by our shift in focus from discontinued operations to consulting services.
Liquidity and Capital Resources

 Our net cash flows are as follows (in thousands):
   
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
)
 
13

 
Operating Activities

Our cash provided by operating activities is driven primarily by consulting revenue, vendor provided credit, and cash flow from discontinued operations. Our primary uses of cash from operating activities have been for compensation expenditures, professional fees, rent expense, and general and administrative expenses. 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

During the period we did not have any investing activities.

Financing Activities

Our cash used in financing was primarily the result of advances on the Puerto Rico note repayments to related parties.
 
Critical Accounting Policies and New Accounting Pronouncements

See Note 2 to the financial statements included as part of this report for a description of the Company's significant accounting policies.

Disclosure Controls and Procedures

Under the direction and with the participation of the Company's management, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of April 30, 2017. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's 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 the Company's disclosure controls and procedures were not effective as of April 30, 2017, primarily based on these criteria, due to material weaknesses resulting from our failure to 1) provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 2) effectively implement comprehensive entity level internal controls, and 3) adequately segregate duties within the accounting department due to an insufficient number of staff.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting during the quarter ended April 30, 2017, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
 
 
 
 
 
 
 
 
 
 
 
 
14

 
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
                     
               
                     
               
                     
 
               
                     
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
 
15

 
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  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

16